Oil Price Fundamental Weekly Forecast – Continuation of Bullish Tone Hinges Upon Trade Deal Announcement

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed at their highest levels since September 24 after starting the week with a slightly bearish tone. Helping to underpin prices last week was a surprise decline in U.S. inventories and hope that OPEC and its allies would extend their production cuts in an effort to stabilize prices. Gains were likely capped by bearish forecasts for global demand growth.

Last week, December WTI crude oil settled at $56.66, up $2.79 or +5.18% and December Brent crude oil closed at $62.02, up $2.60 or +4.19%.

Bullish News

Government Reports Drop in Weekly Inventories

According to the U.S. Energy Information Administration (EIA), crude inventories fell 1.7 million barrels in the week-ended October 18, compared with analysts’ expectations for a 2.2 million barrel build. This was a stark contrast with earlier inventory data released by industry group the American Petroleum Institute (API), which showed a build of 4.5 million barrels in U.S. crude stocks.

The EIA said the drawdown in weekly stocks came as refiners hiked crude runs and oil imports fell, which prodded a jump in both benchmark crude grades on Wednesday.

Optimism over OPEC+ Output Cuts

Traders also increased bets on OPEC and its allies extending supply curbs to offset the weaker demand outlook in 2020.

Saudi Arabia, OPEC’s de facto leader, wants to focus first on boosting adherence to the group’s production-reduction pact with Russia and other non-members, an alliance known as OPEC+, before committing to more cuts, sources told Reuters.

Bearish News

Economic Headwinds Could Pressure Demand

Concerns about demand weighed on prices with headwinds facing the U.S. and global economy likely to intensify in the months ahead.

Economists in a Reuters poll said a steeper decline in global economic growth remains more likely than a synchronized recovery, even as multiple central banks dole out rounds of monetary easing.

Another Reuters poll of economists found the recent truce in the U.S.-China trade war is not an economic turning point and has done nothing to reduce the risk that the United States could slip into recession in the next two years.

In Europe, a survey from economic powerhouse Germany, showed employment in the nation’s private sector fell for the first time in six years in October, suggesting that a third-quarter slowdown could stretch into the closing months of the year.

Economic growth across Asia is set to slow more than expected, according to the latest projections by the International Monetary Fund (IMF).

In its Regional Economic Outlook report released Wednesday, the IMF said growth in Asia could moderate to 5% in 2019, and 5.1% in 2020 – that’s 0.4% and 0.3% lower than its April projections.

Earlier this week, the IMF had projected the Chinese economy could grow at 5.8% next year – slower than the 6.1% forecast for 2019.

Weekly Forecast

The direction of the market this week will likely be determined by optimism over a U.S.-China trade deal and continued hope of additional supply cuts by OPEC and its friends. Both are bullish signs.

On Friday, the Office of the U.S. Trade Representative said the U.S. and China have made progress in trade discussions and have come close to finalizing parts of a phase one deal.

The agency issued a statement outlining the status of discussions following a conversation that U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin had with Chinese Vice Premier Liu He.

“They made headway on specific issues and the two sides are close to finalizing some sections of the agreement,” USTR said. “Discussions will go on continuously at the deputy level, and the principals will have another call in the near future.”