Oil Price Fundamental Daily Forecast – Supported by Demand for Risk, Possible Escalation of Middle East Tensions

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are spiking higher early Tuesday, continuing the strong rebound rally which began on Monday. Today’s early rally is being driven by concerns that the escalation of military activity in the Middle East could lead to a supply disruption. Upbeat comments from Chinese President Xi Jinping are also supporting demand for higher risk markets like crude oil. Weighing on gains, however, are concerns over rising U.S. production.

At 0636 GMT, June WTI crude oil is trading $64.26, up $0.83 or +1.31% and June Brent crude oil is at $69.52, up $0.87 or +1.27%.

Crude oil is recovering early Tuesday from last week’s steep sell-off that was fueled by concerns over the simmering trade conflict between the United States and China.

The main catalyst behind Tuesday’s early rally is an upbeat speech by Chinese President Xi Jinping. Speaking at a Boao Forum for Asia in Hainan province, Xi promised to open the country’s economy further and to cut import tariffs on products including cars. The news helped ease concerns about a trade conflict between the world’s two economic superpowers, driving up demand for risky assets like crude oil.

Xi challenged President Trump when he said China’s reform and opening up will definitely succeed and that a Cold War mentality, zero-sum thinking, and isolationism would hit walls.

Growing tension in the Middle East stemming from perceived risks in Syria is also helping to boost crude oil prices. On Monday, President Trump promised quick, forceful action in response to a suspected chemical weapons attack on Syria.

Forecast

Crude prices are likely to remain firm on Tuesday as long as there isn’t any negative news to disrupt the strength in the stock market. Peace is also unlikely to breakout overnight in Syria so as long as the threat of attack from the U.S. lingers, prices are likely to be supportive. At this time, short-covering is mainly contributing to the rally, but if there were hard evidence of an actual disruption in supply from Syria then we could see the return of aggressive buyers.

Xi’s comments are not only helping to support global equity markets, but it is also helping to drive up the U.S. Dollar. At this time, crude oil doesn’t seem too affected by the firming dollar, but should the Greenback take out yesterday’s high, for example, then this could limit gains in the crude oil market.

Also supporting higher prices is healthy demand as well as the OPEC-led production cuts. Helping to limit gains is soaring U.S. production.

Later in the session, the American Petroleum Institute will release its latest inventories report data, followed by the U.S. Energy Information Administration’s report on Wednesday. With U.S. oil inventories rising the past couple of months, this week’s reports are likely to determine the direction of WTI crude oil.