Oil Price Fundamental Daily Forecast – Speculative Buyers Betting on Increasing Demand Growth

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday, putting the markets in a position to challenge last week’s multi-month highs. The early rally is being fueled by the hopes energy demand will benefit from the trade deal between the United States and China announced on Friday.

At 12:03 GMT, February WTI crude oil is trading $60.33, up $0.19 or +0.33% and February Brent crude oil is at $65.57, up $0.23 or +0.35%.

Trade Deal Underpinning Prices, Uncertainty Capping Gains

Late last week, Washington and Beijing announced a “Phase One” agreement with U.S. officials agreeing to the reduction of some tariffs in exchange for a major purchase of American farm products and other goods by China.

After initialing spiking to the upside on the news, crude oil prices have become rangebound as the lack of concrete details of the trade deal raised some concerns by investors.

“What the market needs now… is clarity around exactly what the deal entails,” analysts from ING Economics said. “The longer we have to wait for this detail, the more likely market participants will start to question how good a deal it actually is.”

Mixed Growth Outlook

Oil prices drew some support on Monday from Chinese data showing industrial output and retail sales growth accelerating more than expected in November. However, some traders still question whether this will be enough to stimulate global demand growth in the wake of last week’s dire forecast from the International Energy Agency (IEA).

“Despite the additional curbs…and a reduction in our forecast of 2020 non-OPEC supply growth to 2.1 million barrels per day (bpd), global oil inventories could build by 700,000 bpd in Q1 2020,” the Paris-based IEA said in a monthly report.

Even if the group adhered strictly to the new pact and output from members beset by political troubles like Iran and Venezuela stayed steady, the IEA said only 530,000 bpd of crude would be withdrawn from the market compared to November production.

Furthermore, growth in China is expected to slow further next year, with a likely government growth target of about 6% in 2020, down from 6%-6.5% this year.

Daily Forecast

The momentum is currently to the upside and could pick up speed if speculators, betting on increased demand, can drive prices through last week’s highs with conviction.

However, all if this speculative buying could come to an end later today if the American Petroleum Institute (API) weekly inventory report, due to be released at 21:30 GMT, shows another build. Prices could retreat further if Wednesday’s U.S. Energy Information Administration (EIA) weekly inventories report shows similar results. Traders expect the reports to show a 1.8 million barrel draw down.

Today’s U.S. Capacity Utilization and Industrial Production reports could also trigger a strong response in the market on Tuesday.