Oil Price Fundamental Daily Forecast – Short-Term Weather Concerns Outweighing Long-Term Demand Worries

The demand concerns are a longer-term issue. The potential supply concerns due to the approaching tropical storm are a real short-term problem. Therefore, unless the weather conditions suddenly improve and production resumes, this story is likely to drive the price action today.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher early Friday despite another report calling for a supply glut in 2020. On Thursday, the markets rallied to their highest levels since May 28 and May 23, respectively, however, the lack of follow-through to the upside led to the formation of a pair of potentially bearish technical closing price reversal tops.

At 08:40 GMT, September WTI crude oil futures are trading $60.77, up $0.50 or +0.83% and September Brent crude oil futures are at $67.19, up $0.87 or +1.01%.

There was no follow-through to the downside earlier in the session after yesterday’s reversal to the downside was fueled by an OPEC forecast of slower demand for its crude oil next year. Today’s price action indicates that bullish traders are still responding to the oil producers’ shutdown of rigs in the Gulf of Mexico due to a tropical storm.

According to the latest reports, oil companies in the Gulf of Mexico had cut more than 1 million barrels per day (bpd) of output, or 53% of the region’s production, due to Tropical Storm Barry which could make landfall Saturday on the Louisiana coast.

A sharp drawdown in U.S. crude stocks and geopolitical risks are also helping to underpin both WTI and Brent crude oil.

On Wednesday, the U.S. Energy Information Administration (EIA) reported that crude stockpiles fell 9.5 million barrels in the week-ending July 5. This was well above the 3.1 million-barrel draw forecast. This also marked the fourth consecutive weekly decline.

Additionally, although it didn’t result in a supply disruption, Iran’s alleged attempt to block a British-owned tanker led to escalated tensions in the Middle East. This is also propping up prices.

Keeping a lid on prices are two independent reports calling for lower demand.

On Thursday, OPEC said the world would need 29.27 million bpd of crude from its members in 2020, down 1.34 million from this year.

Early Friday, the International Energy Agency (IEA) expects the return of an oversupplied oil market next year, despite the OPEC-led pact designed to cut production and stabilize prices.

The IEA said the “main message” of its closely-watched report was that oil supply in the first six months of 2019 had exceeded demand by 0.9 million barrels per day.

“This surplus adds to the huge stock builds seen in the second half of 2018 when oil production surged just as demand started to falter,” the IEA said.

“Clearly, market tightness is not an issue for the time being and any rebalancing seems to have moved further into the future.”

“The widely-anticipated decision by OPEC+ ministers to extend their output agreement to March 2020 provides guidance but it does not change the fundamental outlook of an oversupplied market,” the IEA said.

Daily Forecast

The demand concerns are a longer-term issue. The potential supply concerns due to the approaching tropical storm are a real short-term problem. Therefore, unless the weather conditions suddenly improve and production resumes, this story is likely to drive the price action today.

From a technical perspective, holding above their respective 200-day Moving Averages will indicate the presence of buyers. The September WTI crude oil support is $59.12 and the September Brent crude oil’s support is at $66.63.

 

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