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Oil Price Fundamental Daily Forecast – Rally Not Making Sense Amid Trade Deal Concerns, Weak China Factory Data

The key market driver on Thursday is the prediction by an OPEC official about lower-than-expected U.S. shale production growth in 2020. However, this is stark contrast with forecasts by the U.S. Energy Information Administration (EIA) on Wednesday that U.S. oil production is on course to hit new records this year and next.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher early Thursday as traders shrug off the potentially negative news over a U.S.-China trade deal and instead focus on industry data, which showed a surprise drop in U.S. crude inventories, and surprisingly bullish comments from a high-ranking government official.

At 07:56 GMT, January WTI crude oil is trading $57.60, up $0.40 or +0.70% and January Brent crude oil is at $62.79, up $0.42 or +0.67%.

Trade Deal ‘Hits a Snag’

U.S.-China trade negotiations have ‘hit a snag’ over farm purchases, with Beijing not wanting a deal that looks one-sided in favor of the United States, the Wall Street Journal reported on Wednesday, citing people familiar with the matter.

The report came after U.S. President Donald Trump said a trade deal with China was “close,” but offered no details and warned that he would raise tariffs “substantially” on Chinese goods if there was no deal.

China’s Economy Grinds Lower

China’s industrial output grew significantly slower than expected in October, as weakness in global and domestic demand and the drawn-out Sino-U.S. trade war weighed on activity in the world’s second-largest economy.

Indicators showed other sectors are slowing significantly and missing forecasts with retail sales growth back near a 16-year trough and fixed asset investment growth the weakest on record.

The disappointing economic data adds to the case for Beijing to roll out fresh support for the economy after China’s economic growth slowed to its weakest pace in almost three decades in the third quarter.

American Petroleum Institute Weekly Inventories Report

The API reported a crude oil inventory draw of 500,000 barrels for the week-ending November 7, compared to analyst expectations of a 1.649-million-barrel build.

“After today’s inventory move, the net draw for the year now sits at 8.76 million barrels for the 46-week reporting period so far, using API data,” according to Oilprice.com.

The API also reported a build of 2.3 million barrels of gasoline for the week-ending November 7. This was more than double the drawdown forecast of 1.167 million barrels.

Distillate inventories saw a build of 800,000 for the week, while Cushing inventories fell by 1.2 million barrels.

Daily Forecast

The key market driver on Thursday is the prediction by an OPEC official about lower-than-expected U.S. shale production growth in 2020. However, this is stark contrast with forecasts by the U.S. Energy Information Administration (EIA) on Wednesday that U.S. oil production is on course to hit new records this year and next.

It may be just a matter of time before traders realize this and drive prices lower again. Furthermore, the stress from the lack of progress in U.S.-China trade talks could start to weigh on prices.

Perhaps, Wednesday’s EIA weekly inventories report, due to be released at 1600 GMT, will determine the true direction of the market. It is expected to show a 1.5 million barrel build.

Crude traders are acting as if the U.S. and China are close to a deal, but the risk sensitive Treasury bonds and Japanese Yen markets do not. Oil prices could break sharply if the trade negotiations go into a prolonged stall.

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