Oil Price Fundamental Daily Forecast – Weaker as Recession Fears Raise Concerns About Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Monday, but inside Friday’s range, the price action suggests investor indecision and impending volatility. Today’s nearly 1 percent drop in prices is being driven by concerns that a looming global recession could offset the current supply tightening being fueled by a combination of OPEC-led production cuts and the U.S. sanctions against Iran and Venezuela.

At 07:39 GMT, May WTI crude oil futures are trading $58.64, down $0.40 or -0.66%, and June Brent crude oil is at $66.37, down $0.38 or -0.57%.

Worries over a potential recession in the U.S. began to surface last week after the Federal Reserve lowered its outlook for growth while indicating it would not raise interest rates this year because of a weakening economy.

Concerns increased on Friday when the 10-year U.S. Treasury yields fell below the three-month rate for the first time since 2007. Historical data indicates that when a yield curve inverts, or when long-term rates fall below short-term rates, this has signaled an upcoming recession.

Adding to the fears of a recession were reports of more widespread global weakness. On Friday, manufacturing data from Germany, Europe’s biggest economy, shrunk for the third straight month. On top of that, manufacturing weakness has also been evident in China and Japan.

As ANZ bank put it, the darkening economic outlook “overshadowed the supply side issues.”

Daily Forecast

Prices are expected to continue to be supported by the OPEC-led supply cuts and the sanctions against Iran and Venezuela, however, the inability to sustain a rally over current technical resistance levels after the markets hit 4-month highs last week, suggests long traders are taking profits at current price levels. Furthermore, investors are having a hard time buying strength in this market, which suggests prices may have to retreat into a value zone in order to attract new buyers.

The recent price action strongly indicates that WTI futures traders have clearly established resistance at $59.63 to $60.39. If the selling pressure continues then the nearest short-term target is $57.37 to $56.78. Buyers could step in on a break into this area.

Brent futures traders have established resistance at $67.90 to $68.45. Its first downside target area is $66.33 to $65.70. This zone is currently being tested. If it fails then look for prices to retreat into $64.03 to $62.99.