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Oil Price Fundamental Daily Forecast – Underpinned by Optimism Ahead of US-China Talks; Supply Issues

By:
James Hyerczyk
Published: Oct 7, 2019, 11:24 UTC

The outcome from this week’s trade discussions “will likely be pivotal in determining if the two sides can reach an interim trade deal that postpones further tariff escalation,” analysts at Eurasia Group wrote in a note last week.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Monday shortly before the regular session opening. The markets are also recovering from early session weakness which could be a sign that buyers are returning after a two week decline.

Bargain-hunters came in last Thursday to stop the selling as the markets rapidly approached their August bottoms. This led to a follow-through rally on Friday that was fueled by a “solid” U.S. Non-Farm Payrolls report.

Early last week, crude oil was driven lower by a disastrous ISM Manufacturing PMI report and a weaker-than-expected ISM Non-Manufacturing PMI report that fanned the flames of recession, while fostering concerns over slower demand growth.

At 11:00 GMT, November WTI crude oil is trading $53.40, up $0.58 or +1.14% and December Brent crude oil is trading $58.87, up $0.50 or +0.86%.

U.S. China Trade Talks Resume

High-level trade negotiations between the United States and China are set to begin on Thursday in Washington. The outcome of the meeting is likely to have an impact on crude oil prices. Traders aren’t expecting a deal at the end of the two-day get together, however, the announcement of progress toward a deal will be welcomed news.

The outcome from this week’s trade discussions “will likely be pivotal in determining if the two sides can reach an interim trade deal that postpones further tariff escalation,” analysts at Eurasia Group wrote in a note last week.

They also said there is a 40% probability to an interim deal, and a 60% chance that Trump at least postpones further tariff hikes.

Unrest in Iraq Impacting Supply Side

CNBC is reporting that deadly anti-government unrest is gripping Iraq, the second-largest producer among the OPEC countries.

Iraq’s oil exports of 3.43 million barrels per day (bpd) from Basra terminals could be disrupted if instability lasts for weeks, Ayham Kamel, Eurasia Group’s practice head for Middle East and North Africa, said in a note.

“Any oil production disruption would occur at a time when Saudi Arabia has lost a significant part of its energy system redundancies (spare capacity),” he said.

Maintenance and Pipe Repairs

Pipe repairs in the British North Sea and scheduled oil field maintenance in Libya are also underpinning prices on Monday.

We’re not expecting the news to trigger a lengthy rally because demand is the key issue driving the price action at this time. However, it does remind us that problems with supply could escalate fairly quickly.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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