Oil Price Fundamental Daily Forecast – Weakness Suggests Traders Expect Ample Supply When Sanctions Begin

U.S. West Texas Intermediate and international-benchmark Brent crude oil are under pressure Tuesday. The selling is being fueled by a drop in Asian equity markets and by a pledge by Saudi Arabia to play a “responsible role” in stabilizing the energy markets as we rapidly approach the start of the sanctions against Iran.

At 0729 GMT, December WTI crude oil is trading $68.97, down $0.39 or -0.56% and January Brent crude oil is at $78.91, down $0.53 or -0.67%.

Crude oil opened steady on Tuesday following yesterday’s reversal bottom and higher close. However, sellers quickly took control when stock markets in Asia opened weaker than expected. Crude oil continued to weaken along with the equity markets led by a steep drop in the major Chinese indexes. The decline in prices renewed concerns over demand tied to the slide in China’s economy.

Also helping to keep a lid on prices and contributing somewhat to the sell-off was top crude oil exporter Saudi Arabia’s pledge to keep markets supplied despite its increasing isolation from the West over the killing of prominent Saudi journalist Jamal Khashoggi.

Traders have been underpinning prices since late last week on the notion that the Saudi’s would cut crude supply in retaliation for potential sanctions against it over its involvement and attempted cover-up of the Khashoggi killing.

However, this idea may have been put to bed on Monday when Saudi Energy Minister Khalid al-Falih said that “there is no intention” for such action, and that Saudi Arabia would play a ‘constructive and responsible” role in world energy markets.

Forecast

Prices are likely to remain under pressure on Tuesday as traders are likely to continue to react to the two events which could lead to lower demand and greater supply.

A weakening Chinese economy could lead to lower demand. Even if it didn’t, rising U.S. production would likely offset any increase in global demand.

Furthermore, today’s early price action suggests that traders believe the market will be amply supplied when the sanctions against Iran begin on November 4. Traders seem to be willing to give Saudi Arabia and Russia the benefit of the doubt that they will be able to offset any loss of Iranian exports, which some estimate to be about 1.5 million barrels per day of crude oil.

Unless there is a dramatic disruption to supply between now and November 4, it looks as if the crude oil market will be in the strong hands of bearish traders.

Later on Tuesday, the American Petroleum Institute is set to release it estimates of weekly inventories. Crude oil stocks are seen up by 3.550 million barrels, while gasoline supplies are seen down 1.797 million barrels and distillates down by 2.375 million barrels.