Oil Price Fundamental Weekly Forecast – Market Needs Further OPEC Output Cuts to Stabilize Prices

After a bearish start for the week, U.S. West Texas Intermediate and international-benchmark Brent crude oil futures were able to claw back most of those losses, but still finished lower for the week. The price action was influenced by a number of factors but the central focus remained on U.S.-China trade relations.

Last week, December WTI crude oil settled at $53.87, down $0.91 or -1.66% and December Brent crude oil finished at $59.42, down $1.09 or -1.83%.

U.S. Energy Information Administration Weekly Inventories Report

The EIA reported on Thursday that U.S. crude supplies climbed for a fifth week in a row, by 9.3 million barrels for the week-ended October 11. Traders were looking for a 4 million barrel increase.

Traders said the buildup was led by the refinery utilization rate dropping to its lowest since hurricane Harvey in September 2017.

Helping to mute the reaction in the crude oil market to the bearish news were solid draws to both gasoline and distillate inventories.

The EIA data showed supply declines of 2.6 million barrels for gasoline and 3.8 million barrels for distillates. Traders were looking for supply decreases of nearly 1.8 million barrels for gasoline and 2.6 million barrels for distillates.

China Releases Third-Quarter GDP Figures

China released third-quarter GDP figures on Friday showing the economy grew 6.0% from a year ago. This was weaker than analyst expectations for a 6.1% gain. Beijing’s protracted trade dispute with the U.S. has weighed on its economy, with growth slowing to 6.2% in the last quarter, its slowest pace in 27 years. This could lead to lower future demand growth.

Upbeat Chinese Refinery Data Underpinning Prices

A slightly friendly intraday trend developed on Friday in reaction to bullish signals from both the Chinese and U.S. refining sectors.

China’s September refinery throughput, was up 9.4% year on year at 56.49 million tonnes, boosted by new refineries and some independent refiners resuming operations after maintenance.

China Lays Out Terms for Ultimate Trade Deal

China emphasized Thursday that the U.S. must remove tariffs in order for the two countries to reach a final agreement on trade, Ministry of Commerce spokesman Gao Feng said.

“China’s position, principle and goal for the China-U.S. trade negotiations has never changed,” Gao said in Mandarin at a weekly press conference, according to a CNBC translation.

“Both sides’ ultimate goal for the negotiations is to end the trade war, cancel all additional tariffs,” he said. “This is good for China, good for the U.S. and good for the world.”

Positive Outlook for Trade Deal Ahead of Weekend

U.S. President Donald Trump on Friday said he thought a trade deal between the United States and China would be signed by the time the Asia-Pacific Economic Cooperation meetings take place in Chile on November 16-17.

Meanwhile, Chinese Vice Premier Liu He said on Saturday, “The two sides have made substantial progress in many fields, laying an important foundation for the signing of a phased agreement. Stopping the escalation of the trade war benefits China, the U.S. and the whole world. It’s what producers and consumers alike are hoping for.”

Weekly Forecast

The buildup in U.S. stockpiles and the broader concerns over Brexit and U.S.-China trade tensions are likely to be the biggest influences on crude oil prices over the near-term.

A U.S.-China trade pact seems impossible over the short-run, and as long as the tariffs remain intact, even a partial deal won’t have much of a positive impact on the global economy and future demand growth for crude.

The only hope for stabilizing prices will be a decision in December by OPEC and its allies to make deeper supply cuts.