Oil Price Fundamental Weekly Forecast – Supply/Demand Stalemate Likely to Lead to Rangebound Trade

U.S. West Texas Intermediate and international-benchmark crude oil futures remained underpinned by the OPEC-led production cuts and the U.S. sanctions against Venezuela and Iran. The rally, however, was fueled by concerns over potential supply disruptions. Gains remained capped by rising U.S. stockpiles and worries over lower demand due to escalating US-China trade relations.

The cornerstone supporting the market is the tight global supply caused by the production cuts from OPEC and its allies. It won’t become an issue until late June when the participants in the program meet to discuss whether to continue reducing supply.

The variables driving the volatility are the heightened tensions in the Middle East and the renewed worries over a possible global economic slowdown due to the escalating trade dispute between the U.S. and China.

Last week, July WTI crude oil settled at $62.92, up $1.12 or +1.81% and August Brent crude oil settled at $71.26, up $1.62 or +2.27%.

Other News

Oil services firm Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil fell by 3 to 802 during the week-ending May 17. That followed a decline of 2 rigs the previous week. The total active U.S. rig count, meanwhile, also fell by 1 to 987, according to Baker Hughes. The count is down 59 units from this time a year ago when the count stood at 1,046.

The report went on to show that two additional units were drilling offshore last week with 22 rigs working. A total of 961 rigs were drilling on land, down 3 units from the week-ending May 10. The number of rigs drilling in inland waters was unchanged at 4 units.

Weekly Forecast

For much of last week, it looked as if worries over supply disruptions were going to be the main price driver due to the relative calm being generated by renewed trade talks between the United States and China. However, this line of thought changed on Friday with the announcement that said the trade talks have stalled. It now looks as if demand fears amid a standoff in Sino-U.S. trade talks have re-entered the picture.

Essentially, bullish traders are banking on mounting Middle East tensions, the OPEC-led supply cuts and the sanctions against Venezuela and Iran to be supportive. Bearish traders are hoping increasing U.S. crude inventories, consistently record-high production levels and worries over future demand due to escalating U.S.-China trade tensions will keep a lid on prices.

Due to the stalemate in the fundamentals, we’re going to go into the new week looking for a rangebound trade until the major traders choose a direction, or until one of the major stories driving the price action begins to dominate the news.

One guideline we’re going to be watching is trader reaction to the 200-day moving average, which seems to be the line in the sand for traders. For July WTI traders, the number is $60.71. For August Brent traders, the key level to watch is $68.69.