Oil Price Fundamental Daily Forecast – Saudi Output Cuts Mildly Supportive, Demand is Key Issue

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed on Friday. Both contracts are being pressured over demand concerns, but the Brent contract is picking up some support after Saudi Arabia announced bigger-than-expected production cuts. Despite the bearish tone this week, the markets remain underpinned by the OPEC-led supply cuts and U.S. sanctions against Venezuelan oil exports.

At 12:11 GMT, March WTI crude oil is trading $52.34, down $0.30 or -0.57% and April Brent crude oil is at $61.70,up $0.07 or +0.11%.

Putting a lid on crude oil futures are renewed worries over U.S.-China trade relations. The growing concerns were fueled by comments on Thursday from a U.S. trade official who felt the two economic powerhouses were still far away from striking a trade deal despite recent optimistic remarks from the Trump administration, and a report that an upcoming meeting between U.S. President Trump and China’s President Xi Jinping would be pushed into March.

Traders are also responding to another downgrade of a major economic region as well as dovish remarks from the Reserve Bank of Australia.

In the U.S. on Thursday, the crude oil tumbled after White House economic advisor Larry Kudlow said that China and the U.S. were still far away on striking a trade deal. Later in the session, crude oil weakened further after CNBC reported that the Trump-Xi meeting before the March 2 deadline was “highly unlikely.”

U.S. WTI and Brent crude oil were under pressure before the opening bell on Thursday after the European Commission sharply cut its forecasts for Euro Zone economic growth this year and next on expectations the bloc’s largest countries will be held back by global grade tensions and domestic challenges. The Commission said Euro Zone growth will slow to 1.3 percent this year from 1.9 percent in 2018, before rebounding in 2020 to 1.6 percent.

Overnight, the Reserve Bank of Australia (RBA) may have telegraphed a rate cut for later in the year when it made a substantial downward to its growth forecasts in its quarterly Statement of Monetary Policy (SoMP). This also helped put a lid on crude oil prices.

Daily Forecast

The outlook for lower demand is expected to continue to weigh on the crude oil market today as the current theme in the market moving forward is concern over the slowing global economy. The news that Saudi Arabia reduced its output in January by about 400,000 barrels per day (bpd) to 10.24 million bpd is potentially bullish, but it is actually stale data. Traders are more concerned about demand at this time.

The may be some light at the end of the tunnel, however, for bullish traders. Some traders are saying that the Trump administration is not expected to renew waivers to sanctions against buying Iranian oil.

Crude traders will also be watching the price action in the stock market since it has been moving nearly lock-step with crude oil for several months. Stronger stocks will be supportive for prices, put another steep stock market decline will put pressure on crude prices.

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