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Oil Price Fundamental Daily Forecast – Sanctions Against Venezuela Underpinning Prices

By:
James Hyerczyk
Published: Jan 29, 2019, 06:02 UTC

Traders are reacting to the Venezuelan headlines early Tuesday, but are likely to be further influenced early today by investor appetite for risk and later in the session by the American Petroleum Institute’s weekly inventories report.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly better early Tuesday, following yesterday’s steep sell-off. The market is being supported by a surprise move by Washington in response to the economic and political turmoil in Venezuela. Gains are being capped, however, due to concerns over rising global supply and falling global demand.

At 0533 GMT, March WTI crude oil is trading $52.19, up $0.20 or +0.38% and March Brent crude oil is at $60.14, up $0.21 or +0.35%.

Monday’s Recap

On Monday, crude oil prices plunged on concerns over weak industrial earnings in China and the United States. The news raised fresh concerns about a global economic slowdown that could lead to a drop in energy demand.

In regards to China, traders are still trying to digest the potential impact on demand due to the drop in Chinese GDP. Additionally, profits at Chinese industrial firms contracted in December for a second straight month, China’s National Bureau of Statistics said on Monday.

In the U.S., crude oil was pressured by lower demand for risky assets after the stock market plunged in reaction to the news that Caterpillar issued weak guidance for future profits and reported disappointing fourth-quarter earnings. The decline was being blamed on the impact of tariffs and slower sales in China.

Before the regular session opening, crude oil was being pressured by a report from Baker Hughes on Friday which showed the number of rigs operating in U.S. fields jumped by 10 last week.

US Sanctions Venezuela

Prices are being underpinned early Tuesday after Washington imposed sanctions on Venezuelan state-owned firm PDVSA. The move is designed to severely curb the OPEC member’s crude exports to the United States.

“As a result of today’s action, all property and interests in property of PDVSA subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them,” the U.S. Treasury said late on Monday.

Forecast

Traders are reacting to the Venezuelan headlines early Tuesday, but are likely to be further influenced early today by investor appetite for risk and later in the session by the American Petroleum Institute’s weekly inventories report.

The sanctions against Venezuela are not expected to have too much of an impact on prices because the major concern remains the plentiful supply due to rising U.S. production and the falling demand in reaction to the slowing global economy.

Furthermore, after yesterday’s stock market reaction to the bearish news about Caterpillar stock, crude oil traders are going to be paying closer attention to data from Chinese state run firms and private manufacturing sector. Not only do traders have to watch the supply/demand situation, but now they are going to have to closely watch investor appetite for risk.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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