Oil Price Fundamental Daily Forecast – Traders Looking to Establish New Balance Points after China Tariffs

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed early Thursday as investors continue to digest the impact of China’s tariffs on future demand.

At 0957 GMT, September WTI crude oil is trading $66.88, down $0.06 or -0.10% and October Brent crude oil is at $72.29, up $0.01 or 0.01%.

The markets are trying to stabilize after yesterday’s steep 3 percent sell-off. Helping to underpin prices is the first round of U.S. sanctions against Iran which came into effect earlier in the week. This story affects the supply side of the market. Affecting the demand side is the placing of tariffs on U.S. crude imports by China. Traders are trying to establish a new balance point in the market.

WTI’s June to July trading range is $62.99 to $72.98. Its 50% to 61.8% retracement zone is $67.99 to $66.81. This zone is the balance area. Trader reaction to this zone will determine the near-term direction of the market. Currently, the market is testing the weak side of this zone.

Brent’s April to May trading range is $65.29 to $79.37. Its retracement zone at $72.33 to $70.67 is currently being tested.

To recap this week’s events, on Tuesday, the U.S. renewed sanctions against Iran that are expected to eventually remove about 1 million barrels per day of crude oil from the market. This threatens supply. On Wednesday, China said it will impose tariffs of 25 percent on a further $16 billion in U.S. imports. Among the goods affected is crude oil and other petroleum products. This affects future demand.

In other news, the U.S. Energy Information Administration reported that crude inventories fell 1.4 million barrels in the week-ended August 3, less than half the 3.3 million-barrel draw analysts had expected. Gasoline stocks rose by 2.9 million barrels, compared with an estimate for a drop of 1.7 million-barrel drop.

Forecast

The direction of the WTI and Brent crude oil markets today will be determined by trader reaction to the key support zones. WTI traders are going to try to establish support at $66.81, just slightly above the bottom at $66.29. Brent traders seem to have identified support at $72.33. The major support levels are $71.34 and $70.67.

The tariffs by China on U.S. crude imports have shaken up the markets. If they erode confidence in demand enough then support is likely to continue to erode until buyers find value. Furthermore, China’s weak economic numbers this week have also raised concerns over demand from the world’s second largest economy.

In another sign that exporters are preparing for slower demand from some of the big Asian buyers, Iraq cut its official selling price for September cargoes of Basra Light crude for its Asian customers on Thursday.

The wildcard remains Iran. At this time, no one is sure how much oil will be removed by the sanctions. Current guesses range from 1 million bpd to 2 million bpd. If more oil leaves the market than expected then the bulls will win the supply/demand battle.