Oil Price Fundamental Daily Forecast – Supply Concerns Supportive, but Watch Out if Demand Softens

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures continue to build on Monday’s strong recovery from early weakness, edging higher early Tuesday after Libya declared force majeure on significant amounts of its supply. However, concerns over rising production from Saudi Arabia, Russia and the United States may be limiting gains.

At 0731 GMT, August WTI Crude Oil is trading $74.63, up $0.69 or +0.95% and September Brent Crude Oil is at $77.66, up $0.36 or +0.47%.

Buyers are supporting prices today on speculation that disruptions to Libyan supplies may outweigh a rise in June in supply from OPEC.

On Monday, Libya’s National Oil Corporation (NOC) declared force Majeure on loadings from Zueitina and Hariga ports on Monday, resulting in total production losses of 850,000 bpd due to the closure of eastern fields and ports.

The Libyan news came after a Reuters survey showed OPEC’s June output was 32.32 million barrels per day (bpd), up 320,000 bpd from May. The June total is the highest since January 2018.

Traders are also watching U.S. oil production, which has surged by 30 percent over the last two years to 10.9 million barrels per day (bpd), absorbing at least some of the recent disruptions from Canada, Libya and Venezuela as well as the looming sanction against Iran.

Forecast

The trend is up so the continuation of the rally is not a surprise. At this time, there is very little room for error due to the tightened supply. Therefore, any news about increased production or supply disruptions will add to the heightened volatility.

Despite the focus of bullish traders on the supply side, it may actually be the demand side that drives the next major move in prices. What traders can’t ignore at this time is a slowdown in demand.

According to Barclay’s, “U.S. petroleum demand growth slowed significantly to 385,000 bpd year-on-year in April, compared with a growth of more than 730,000 bpd year-on-year in Q1.” This was mostly due to higher fuel prices. So it stands to reason that demand will drop further if prices continue to rise.

So while the trend may be your friend, and the current supply narrative potentially bullish, investors should start watching the demand side of the equation especially because of higher prices and the escalating trade dispute between the United States and China.

Higher price may start to turn off consumers, and a trade war could have a huge negative impact on the global economy. Demand could decline sharply, for example, if growth in Asia, especially China, starts to soften then decelerate.