Oil Price Fundamental Weekly Forecast – Bulls Need Actual Middle East Supply Disruption to Prop Up Prices

U.S. West Texas Intermediate and International-benchmark Brent crude oil futures finished sharply lower last week as demand concerns overtook worries about a supply disruption in the Middle East.

The market started under pressure early in the week when production in the Gulf of Mexico began increasing after Hurricane Barry passed through the region without inflicting major damage on the oil platforms. Since there was no supply disruption, speculative buyers were forced to liquidate.

The bearish surprise for bullish investors early in the week was the announcement that Iran would willing to talk with the U.S. about its nuclear missile program. Another surprise for the bulls was the jump in U.S. crude oil products inventories on Wednesday, according to a government report. Sellers also gained controlled on reports of increasing U.S. shale production.

Last week, September WTI crude oil settled at $55.76, down $4.54, or -7.53% and September Brent crude oil finished at $62.47, down $4.25 or -6.80%.

U.S. Energy Information Administration Report

U.S. crude inventories fell 3.1 million barrels, according to the weekly EIA report, but this was in line with expectations with some analysts predicting a decrease of 2.7 million barrels, and others forecasting a 3.6 million barrel draw.

However, gasoline stocks rose 3.6 million barrels, compared with analysts’ expectations for a 925,000-barrel drop. Distillate stockpiles grew by 5.7 million barrels, much more than expectations for a 613,000-barrel increase, the EIA data showed.

Military Activity, but No Supple Disruption

The United States said on Thursday that a U.S. Navy ship had “destroyed” an Iranian drone in the Strait of Hormuz after the aircraft threatened the vessel, but Iran said it had no information about losing a drone. Iran also seized a UK tanker. Trader reaction was muted, however, because there was no oil lost.

IEA Continues to Warn about Lower Demand

In another potentially bearish development, the International Energy Administration (IEA) is revising its 2019 oil demand growth forecast to 1.1 million barrels per day (bpd) and may cut it again if the global economy and especially China shows further weakness, EIA Executive Director Fatih Birol said. Last year, the IEA predicted that 2019 oil demand would grow by 1.5 million bpd but had already cut the growth forecast to 1.2 million bpd in June this year.

Weekly Forecast

Traders will be watching the developments in the Middle East between the UK and Iran, and the US Navy and Iran, however, we’re not likely to see an extended rally unless military action leads to a supply disruption.

Traders will also be monitoring the U.S.-China trade negotiations, the European Central Bank (ECB) monetary policy decision, and any comments from Federal Reserve officials. Progress in the trade talks and fresh stimulus from the ECB could underpin prices.

From a technical standpoint, September WTI crude oil has major support at $55.62 to $54.50 and September Brent crude oil has support at $63.06 to $61.97.