Oil Price Fundamental Weekly Forecast – Could See Further Short-Covering Ahead of US-China Trade Talks

The short-covering rally on Friday was impressive, but it’s too early to call it a change in trend. However, short-term momentum may have shifted. This could help produce a short-covering rally early in the week. Furthermore, some technicians are calling the markets oversold after a relentless 13 session sell-off.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed lower last week, but a rally on Friday helped reduce some of the steep loss from earlier in the week.

Crude oil has been trending lower since September 16 as concerns over demand have outweighed demand. These worries were elevated last week because of weaker-than-expected U.S. economic data. At the start of the week, oil traders were expressing confidence in the U.S. economy, but are now worried that the slowing global economy has spread to the United States.

Last week, November WTI crude oil settled at $52.81, down $3.10 or -5.54% and December Brent crude oil finished at $58.37, down $2.67 or -4.57%.

Contributing to the early weakness was a larger-than-expected build in U.S. crude inventories according to a government report on Wednesday. This surprise news drove prices sharply lower because it followed a report from the American Petroleum Institute (API) on Tuesday that showed an unexpected drawdown. This created uncertainty for traders.

Prices were also pressured by the news that Saudi Aramco had restored full oil production and capacity to the levels they were at before attacks on its facilities on September 14.

U.S. Energy Information Administration Weekly Inventories Report

On Wednesday, the EIA reported an inventory build of 3.1 million barrels for the week-ending September 27. Analysts were looking for a build of 2.4 million barrels.

The EIA also reported a 200,000-barrel decline in gasoline stockpiles, which compares with a 500,000-barrel rise in the previous week. Distillate inventory was down 2.4-million barrels.

The API reported late Tuesday a large crude oil inventory draw of 5.92 million barrels for the week-ending September 26. Traders were looking for a 1.567 million barrel build.

The divergence between the API and EIA reports was expected because the attacks on Saudi production on September 14 probably skewed the data. The differences could be reconciled within a week or two.

Economic Data Producing Two-Sided Trade

Crude oil prices were hit hard on October 1 after a weaker-than-expected ISM Manufacturing PMI report fanned the flames of recession. Later in the week, the losses were extended after the ISM Non-Manufacturing PMI report came in below expectations.

Crude oil traded higher on Friday following the release of a solid U.S. jobs report. The news helped ease concerns over lower demand due to a U.S. recession. This may carry over into this week.

Weekly Forecast

The short-covering rally on Friday was impressive, but it’s too early to call it a change in trend. However, short-term momentum may have shifted. This could help produce a short-covering rally early in the week. Furthermore, some technicians are calling the markets oversold after a relentless 13 session sell-off.

Some traders are saying sellers lightened up on the short side as the markets approached their August bottoms. Nonetheless, the fundamentals are bearish and the markets are not in a position to change the trend to up at this time. However, they may be due for a normal technical correction that could alleviate the oversold condition.

We could see more aggressive short-covering ahead if geopolitical issues escalate in the Middle East. Additionally, optimistic traders may decide to lighten up on the short side or take speculative long positions ahead of the start of U.S.-China trade talks on October 10-11.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US