Oil Price Fundamental Daily Forecast – Recession Fears Weighing on Prices

The tone of the market is bearish and not likely to reverse to the upside very much unless today’s U.S. Energy Information Administration’s weekly inventories report posts a much bigger than expected draw down.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply lower on Wednesday shortly after the regular session opening. The selling is being fueled by a number of events including disappointing economic data from China and Europe and an unexpected rise in U.S. crude inventories according to an industry report. Additionally, the U.S. bond market flashed a recession warning, raising concerns over lower future demand.

At 12:17 GMT, October WTI crude oil is trading $55.11, down $1.99 or -3.43% and December Brent crude oil is at $58.40, down $2.08 or -3.44%.

China Industrial Output Disappoints

Prices began to weaken early in the session after yesterday strong surge after data from the National Bureau of Statistics in China on Wednesday showed the country’s industrial output in July rising at its slowest in 17 years.

Industrial output rose 4.8% in July as compared to a year earlier, official data showed, its slowest since February 2002. Traders were looking for 5.8% growth. Retail sales growth was also lower than expected, rising 7.6% in July from a year earlier. Traders were looking for an 8.6% gain.

Euro Zone Gross Domestic Product Stable

A contraction for the export-reliant German economy in the second quarter weighed on crude oil prices as it served as a reminder that the prolonged trade war between the United States and China was dragging down the Euro Zone economy.

German Preliminary GDP came in at -0.1%, meeting expectations. Euro Zone Flash GDP also came in as expected at 0.2%. However, Euro Zone Industrial Production fell 1.6%, more than the 1.4% estimate. The previous month was revised lower to 0.8%.

American Petroleum Institute Reports Unexpected Build

The API reported late Tuesday a surprise crude oil inventory build of 3.7 million barrels for the week ending August 8, compared to analyst expectations of a 2.761 million barrel draw.

Gasoline inventories for the week-ending August 8 also rose 3.7-million barrels. Analysts predicted a draw in gasoline inventories of 810,000 barrels for the week.

Distillate inventories fell by 1.3 million barrels for the week, while inventories at Cushing fell by 2.5-million barrels.

Key Treasury Yield Inversion Signals Recession.

On Wednesday, the yield on the benchmark 10-year Treasury note broke below the 2-year rate, a reliable early indicator for economic recessions. The yield on the U.S. 30-year bond fell to a new all-time low, dropping past its prior record notched in the summer of 2016.

Daily Forecast

The tone of the market is bearish and not likely to reverse to the upside very much unless today’s U.S. Energy Information Administration’s weekly inventories report posts a much bigger than expected draw down. Traders are looking for a 2.5 million barrel decrease when the report comes out at 14:30 GMT. Prices could tumble even further if there is a much larger build.

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