Oil Price Fundamental Daily Forecast – Short-Covering, Profit-Taking Underpinning Prices

U.S. West Texas Intermediate and International-benchmark Brent crude oil futures are trading higher shortly before the regular session opening. The markets are trading inside yesterday’s range which suggests investor indecision and impending volatility. It could also be suggesting that traders are transitioning for a counter-trend move. Nonetheless, U.S. and Brent crude are both in positions to post a second week of losses.

At 1004 GMT, December WTI Crude Oil is trading $69.01, up $0.30 or +0.45% and January Brent Crude Oil is at $79.28, up $0.53 or +0.67%.

The focus for investors today is U.S.-China relations and the on-going Sino-U.S. trade war. Despite the early strength, gains are still being limited by concerns that these events are hurting overall economic activity.

Earlier today, domestic government data showed refinery throughput in China, the world’s second-largest oil importer, rose to a record high of 12.49 million barrels per day (bpd) in September as some independent plants restarted operations after prolonged shutdowns over summer to shore up inventories.

However, the report also showed that refinery consumption may rise through the fourth quarter as several state-owned Chinese refiners return to service after maintenance.

On the bearish demand side, China also reported on Friday its weakest economic growth since 2009 in the third quarter, with gross domestic product expanding by only 6.5 percent, coming in below estimates.

Looking ahead, the weak GDP data raised concerns that the country’s trade war with the United States is beginning to have an impact on growth, which may limit China’s oil demand.

Forecast

Today’s early strength may be a technical bounce related to profit-taking and position-squaring in reaction to an unexpected turnaround in China’s stock market. Tensions eased a bit overnight when the heads of the People’s Bank of China, the Securities Regulatory Commission and the Banking and Insurance Regulatory Commission all issued statements expressing support for the stock market and positive economic fundamentals.

Despite today’s early rebound rally, the data this week has been bearish so we’re not expecting too much of a reversal to the upside. Putting the most downside pressure on prices has been the bearish EIA Weekly Petroleum Status Report, which showed U.S. crude production slipped 300,000 barrels per day (bpd) to 10.9 million bpd last week due to the effects of offshore facilities closing temporarily for Hurricane Michael.

The report also showed U.S. crude stocks last week climbed 6.5 million barrels, the fourth straight weekly build, almost triple the amount analysts had forecast.

Oil traders are also continuing to monitor developments over the death of a prominent Saudi journalist. The outcome of an investigation could lead to U.S. sanctions against Saudi Arabia, but Saudi officials have also promised retaliation if sanctions are pursued. This may mean a cut in production, which should be bullish for prices.