Oil Price Fundamental Daily Forecast – Will US Producers Cap Rigs to Stabilize Prices? Can Saudis Cut Further?

U.S. West Texas Intermediate and international-benchmark crude oil futures are rebounding shortly before the regular session opening after hitting their lowest levels since January 9 and January 28 respectively. There were no dramatic changes in the current bearish narrative, so we’re going to assume the moves are technical in nature.

At 09:29 GMT, July WTI crude oil futures are trading $53.77, up $0.27 or +0.50%, up from a low of $53.75, and August Brent crude oil is at $61.95, down $0.04 or -0.12%. It reached a low of $60.46 earlier in the session.

The bearish factors driving crude oil prices lower are fear of falling demand fueled by escalating trade wars and uncertainty over U.S. foreign policy. Last week’s rout in crude oil indicates traders are betting on a global economic slowdown or an even worse recession to crush demand for fuel.

The long-lasting U.S.-China trade dispute remains at the forefront to the global growth outlook, but the addition of Mexico to the fray after President Trump vowed to place a 5% tariff on Mexican imports on June 10, raised uncertainty over the demand picture for the U.S.

New data also supports the expected slower demand. Barclays bank said in a note published last Friday that U.S. March oil consumption “declined significantly year-on-year for the first time since September 2017… (as) petroleum demand fell almost 370,000 barrels per day (bpd) year-on-year on weak consumption across the barrel.”

Don’t Forget About Rising US Supply

Goldman Sachs said in a note published on Sunday that “escalating trade wars and weaker activity indicators have finally caught up with oil market sentiment”.

“The magnitude and velocity of the move lower were further exacerbated by growing concerns over strong U.S. production growth and rising inventories,” Goldman said.

“With an increasingly uncertain macro outlook as well as rising U.S. production and large available core-OPEC spare capacity helping offset declining supply from Iran and Venezuela, we instead expect prices will likely remain around 3Q forecasts and current levels, albeit with still high price volatility,” Goldman said.

Daily Forecast

In my opinion, oil prices will stabilize and could begin to move higher if OPEC and its allies agree to extend their production cut strategy until the end of the year. Furthermore, Saudi Arabia has to stop trying to cover for the lost oil from Iran and Venezuela. Additionally, I’m looking for U.S. producers to cap a few more wells due to expenses and affordability especially if the new tariffs on Mexico and a possible retaliation from Mexico led to higher production costs.

From a technical perspective, WTI prices could consolidate inside $55.32 to $52.70 this week and Brent inside $62.92 to $60.32. If they can accomplish this then a support base will form and we can say with confidence that the worst of the selling is over.