Oil Price Fundamental Weekly Forecast – Choppy Trade, but OPEC Supply Gives It Downside Bias

U.S. West Texas Intermediate and international Brent crude oil futures settled lower last week with the selling primarily driven by worries about over supply.

September WTI crude oil futures settled at $68.49, down $0.20 or -0.29% and October Brent crude oil closed at $73.21, down $1.55 or -2.07%.

With the market posting a two-sided trade after testing 50% resistance and 50% support, the price action at times indicated a balance trade.

Helping to push prices lower earlier this week have been a combination of factors. On Wednesday, prices plunged when the U.S. Energy Information Administration reported that in the week-ending July 27, total U.S. inventories rose 3.8 million barrels, while supplies at Cushing fell 1.3 million barrels.

Throughout the week, gains were limited and prices pushed lower on concerns about oversupply. Recently, Saudi Arabia, Russia, Kuwait and the United Arab Emirates have increased production to help compensate for an anticipated shortfall in Iranian crude supplies once U.S. sanctions take effect and to stabilize prices to prevent a global economic slowdown, which would lower demand.

Late in the week on Thursday, WTI and Brent rallied nearly 2 percent. The move was fueled by aggressive hedge buying tied to an industry report suggesting domestic crude stockpiles would soon decline again after a surprise rise in the latest week.

Traders said prices rallied early in the session when industry information provider Genscape reported that crude inventories at the Cushing, Oklahoma delivery hub for U.S. crude, dropped 1.1 million barrels since Friday, July 27.

The late week gains couldn’t be sustained and prices fell on Friday, turning crude oil lower for the week as fresh trade war concerns weighed on the market and fueled concerns about demand.

In other news, U.S. drillers cut rigs for the second week in three, reducing the number of oil rigs by 2 to 859.

Forecast

Last week’s price action suggested a jittery market place. This generally nervous tone is expected to continue this week as long as there is Iranian sanction uncertainty and tariff uncertainty.

Technical factors also contributed to the price action. WTI crude found resistance inside at retracement zone at $69.64 to $70.42 and support at $67.99 to $66.81. The longer the market remains inside this range, the greater the breakout potential.

As far as Brent is concerned, the main range is $60.24 to $79.37. With the main trend down, selling momentum could easily drive prices into its 50% to 61.8% zone at $69.80 to $67.55.

Bullish factors this week will include low U.S. stockpiles. Currently, U.S. crude inventories are below the 5-year average of around 420 million barrels. Additionally, there is the possibility that Iran stirs tensions in the Gulf region with the start of aggressive war games.

Bearish factors include renewed Canadian production and an escalation of the trade dispute between the US and China. Late last week, fears that Chinese demand could taper after state oil major Sinopec cut its purchase of U.S. crude. China’s Unipec, the trading arm of Sinopec, suspended crude oil imports from the US due to the growing trade spat between Washington and Beijing.

Furthermore, sentiment is growing bearish with the OPEC supply numbers. Prices show that the spread structure is back in contango, which suggests the market is well supplied so there’s a mismatch in timing with OPEC now raising output.

We’re looking for a choppy, trade with a downside bias.