Oil Price Fundamental Daily Forecast – Prices Firm as Supply Concerns Offset Demand Worries

U.S. West Texas Intermediate and Brent crude oil futures are trading higher early Tuesday in reaction to a report from OPEC that confirmed top exporter Saudi Arabia had cut production to avert looming oversupply.

At 0715 GMT, October WTI crude oil futures are trading $67.05, up $0.48 or +0.74% and October Brent crude oil is at $73.07, up $0.46 or +0.63%.

Last month, the Saudi’s told OPEC that it had reduced output by 200,000 barrels per day (bpd) to 10.288 bpd. This came as a surprise since it had recently promised the U.S. that it, along with Russia and other producers would actually increase production to prevent a surge in prices due to the sanctions on Iran.

On Monday, in its monthly report, OPEC confirmed the Saudi cut. This fueled a rebound rally in crude that had been pressure earlier in the session because of demand concerns.

Issues over demand were fueled by the same OPEC report which said it expected world oil demand to grow by 1.43 million bpd in 2019, down from 1.64 million bpd in 2018.

Forecast

OPEC forecast for decreased demand didn’t come as a complete surprise since many traders had been anticipating some form of global economic slowdown due to the trade disputes and the weakness in emerging markets. The real question investors should be asking is how accurate is the 1.43 million bpd estimate?

All indications are the trade dispute between the United States and China is likely to linger for at least several more months since the two countries aren’t even at the negotiating table. China seems ready to take the pain of the tariffs so even if economic data comes in softer than expected, it’s not likely to cave to U.S. pressure over the near-term.

Problems with emerging markets started when the U.S. Fed and other major central banks began raising interest rates. Apparently gone are the days of cheap money so conditions in the emerging markets could worsen, driving demand down at the same time.

I still stand by my forecast that any weakness will be a grind because the hedge funds are long crude oil, and any supply disruptions will trigger a price spike to the upside. The Saudi’s decision to cut output is a form of a supply disruption and prices rallied as a result.

Prices could continue to firm on Tuesday if there is evidence of softer production from Russia, or other major producers. However, the price action the next two days is likely to be largely influenced by late Tuesday’s American Petroleum Institute’s weekly storage report and Wednesday’s U.S. Energy Information Administration’s weekly storage report.