Oil Price Fundamental Weekly Forecast – Supply Tight, but Trade Concerns Capping Prices

The current price action suggests a major move is coming, but it’s not likely to happen until there is major breaking news regarding U.S. –China trade relations. At this point it appears traders aren’t going to make a move until they know definitively if trade deal negotiations are on or off, and how China is going to retaliate against the increased U.S. tariffs.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished a little lower last week, but most of the price action was sideways as investors tried to sort out the ever-changing U.S.-China trade story.

Continuing to underpin prices were the OPEC-led production cuts and the U.S. sanctions against Venezuela and Iran. This news provided steady support throughout the week because these events are helping to keep global supply tight.

Last week, July WTI crude oil futures settled at $61.80, down $0.24 or -0.39% and July Brent crude oil futures finished at $70.62, down $0.23 or -0.33%.

Giving prices a further boost last week was an unexpected drop in U.S. crude inventories. U.S. crude oil stocks fell by 4 million barrels in the week-ended May 3, according to the Energy Information Administration (EIA). Traders were looking for a 1.1 million barrel build.

The EIA also reported an estimated fall of 600,000 barrels in gasoline inventories after a 900.000-barrel increase two weeks ago. Production in the week to May 3 averaged 10.1 million bpd, versus 9.9 million bpd in the previous week.

The EIA report also showed an inventory draw of 200,000 barrels in distillate fuel, which compared with a decline of 1.3 million barrels a week earlier. Distillate fuel production last week averaged 5.1 million bpd, largely unchanged on the prior week.

Other News

Earlier in the week, President Trump said the U.S. will deploy four B-52 bombers to the Middle East in response to what the Trump administration said are threats of a possible attack by Iran on American troops in the region. This helped generate some speculative buying in crude oil

Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil fell by 2 to 805 this week. That followed an increase of 2 oil rigs the previous week. The total active U.S. rig count, meanwhile, also fell by 2 to 988, according to Baker Hughes.

Weekly Forecast

Tight global supplies are likely to continue to underpin WTI and Brent crude oil prices. The sanctions against Iran and Venezuela aren’t going to go away over the near-term. The OPEC-led supply cuts are likely to remain intact until at least late June when the cartel and its allies will meet to discuss the fate of the program.

The wildcard this week will be U.S.-China relations. I do believe a trade deal will eventually get done but in the meantime, moves will be made that could have an adverse effect on crude oil prices.

On Friday, the U.S. implemented new tariffs on China. The world’s second largest economy is now expected to retaliate. They could place a tariff on U.S. crude oil. This would hurt U.S. exports that could drive up domestic supply, while putting pressure on prices.

The main concern weighing on crude oil is whether an escalating trade dispute will lead to a U.S. recession, which would hurt U.S. demand for crude oil.

The current price action suggests a major move is coming, but it’s not likely to happen until there is major breaking news regarding U.S. –China trade relations. At this point it appears traders aren’t going to make a move until they know definitively if trade deal negotiations are on or off, and how China is going to retaliate against the increased U.S. tariffs.

Finally, technical factors are also controlling the direction of prices, namely the 200-day moving average, which is providing support for both the WTI and Brent futures contract.

For July WTI crude oil, the 200-day moving average support is at $60.79, and July Brent crude oil’s 200-day moving average support is at $68.96.

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

Top Promotions

Top Brokers

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