Oil Price Fundamental Daily Forecast – Supply Issues Taking Backseat as Traders Focus on Weakening Demand Growth

Traders are clearly focusing on the potential impact of a weakening global economy on global demand growth. Therefore, economic reports out the U.S., Asia and Europe are going to take on added importance.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower early Thursday on increasing worries over lower demand due to a global economic slowdown. These concerns have been elevated this week because of weaker-than-expected U.S. economic data. At the start of the week, oil traders were expressing confidence in the U.S. economy, but are now worried that the slowing global economy has reached the U.S. shores.

At 07:53 GMT, November WTI crude oil futures are trading $62.60, down $0.04 or -0.01%. December Brent crude oil futures are at $57.62, down $0.07 or -0.12%.

Contributing to the early weakness is a larger-than-expected build in U.S. crude inventories according to a government report on Wednesday. This surprise news drove prices sharply lower on Wednesday because it followed a report from the American Petroleum Institute (API) on Tuesday that showed an unexpected drawdown.

Prices are also being pressured by the news that Saudi Aramco has restored full oil production and capacity to the levels they were at before attacks on its facilities on September 14. However, perhaps slowing down the selling pressure are reports showing production declines in the United States, Russia and OPEC.

U.S. Energy Information Administration Weekly Inventories Report

On Wednesday, the EIA reported an inventory build of 3.1 million barrels for the week-ending September 27. Analysts were looking for a build of 2.4 million barrels.

The EIA also reported a 200,000-barrel decline in gasoline stockpiles, which compares with a 500,000-barrel rise in the previous week. Distillate inventory was down 2.4-million barrels.

The API reported late Tuesday a large crude oil inventory draw of 5.92 million barrels for the week-ending September 26. Traders were looking for a 1.567 million barrel build.

The divergence between the API and EIA reports was expected, in my opinion. I had mentioned about two weeks ago that due to the attacks on Saudi production on September 14 that the inventory figures would be skewed. The differences could be reconciled with a week or two.

Daily Forecast

Traders are clearly focusing on the potential impact of a weakening global economy on global demand growth. Therefore, economic reports out the U.S., Asia and Europe are going to take on added importance.

In the U.S. today, all eyes will be on the ISM Non-Manufacturing PMI report, Weekly Unemployment Claims and Factory Orders. Weaker-than-expected data could lead to further selling pressure.

Earlier in the week, a disastrous ISM Manufacturing PMI report signaled a contraction in the sector for the second consecutive month. This raised major flags about the strength of the economy, while driving up the chances of another Fed rate cut at the end of October. Furthermore, it also reintroduced the word “recession” into the news.

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