Oil Price Fundamental Weekly Forecast – Fed’s Powell Could Shed Light on Future Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished lower last week after posting three stage price action during the holiday-shortened week. The first stage was a rally to their highest levels since May 23. The catalysts behind that move was the hope of a U.S.-China trade deal and OPEC and its allies agreement to continue to cut production until March 2020.

The second stage was a steep sell-off. This was fueled by worries over a global economic slowdown and lower demand after the U.S. threatened to impose $4 billion in new tariffs on the European Union.

The final stage consisted of a closing price reversal bottom and a slight rally. This move was supported by another draw in crude oil inventories and better-than-expected U.S. labor market data.

Last week, August WTI crude oil settled at $57.51, down $0.96 or $1.64% and September Brent crude oil closed at $64.23, down $0.51 or -0.79%.

OPEC and Allies Agree to Extend Supply Cuts

Early last week, OPEC, Russia and nine-other non-OPEC producers agreed to a nine-month rollover of oil supply cuts, ratifying policy designed to prop up crude prices amid a weakening global economy.

In a statement released Tuesday, the energy alliance said it had made the decision to prolong production cuts “in view of the underlying large uncertainties and its potential implications on the global oil market.”

U.S. Energy Information Administration Weekly Inventories Report

The EIA reported last week that domestic crude supplies fell a third straight week, but by a lot less than the forecast. The smaller draw down indicates weaker demand.

The EIA report showed that U.S. crude supplies declined by 1.1 million barrels for the week-ended June 28. Traders were looking for a drawdown of 3.7 million barrels in crude stocks.

The EIA data also showed that gasoline inventories were down 1.6 million barrels, while distillate stockpiles edged up by 1.4 million barrels last week. Traders were looking for gasoline inventories to fall 2.4 million barrels, while distillate stockpiles were expected to fall by 1.4 million barrels last week.

Global Economic Risks

Last week, traders were focused on two potential events:  A trade deal between the U.S. and China, and new tariffs on the European Union. As far as I know, the trade talks between the two economic powerhouses haven’t begun, and the new tariffs against the EU are just a threat.

U.S. Non-Farm Payrolls Report

Bullish traders probably signed in relief on Friday after the U.S. government reported a surge in U.S. non-farm payrolls. The headline number came in at 224K, much higher than the 162K forecast. This helped reduce fears that the economy was slowing and worries over falling future demand.

Weekly Forecast

Traders will be listening to a speech and testimony from Fed Chair Powell to hear his assessment of the economy. Prices could be affected by what he says because the crude oil market is very sensitive at this time to any news that has to do with future demand.

A friendly outlook for the economy could underpin prices. Prices could fall if Powell hints at any signs of an economic slowdown.

Other factors that will influence the direction of prices will be U.S.-China trade relations as well as the on-going tensions between the United States and Iran. Traders will also react to supply data from the American Petroleum Institute (API) and the Energy Information Administration (EIA).