Oil Price Fundamental Weekly Forecast – Supply Tightening But Demand Fears Growing

U.S. West Texas Intermediate and international-benchmark crude oil futures finished mixed last week with the U.S. market managing to eke out a small gain and the international market ending slightly lower, but the price action on Friday suggests there is room for further downside pressure.

Early in the week, the markets were able to overtake a key technical level on their way to a 4-month high, mostly on the back of the OPEC-led supply cuts and talk of extending the plan to cut production, trim the global supply and stabilize prices. However, these gains were erased when concerns about demand were brought to the forefront on Friday.

Last week, May WTI crude oil settled at $59.04, up $0.22 or +0.37% and June Brent crude oil finished at $66.75, down $0.29 or -0.43%.

Although buyers were able to produce a new multi-month high, WTI and Brent crude oil settled lower three out of five sessions. This suggests the selling may be getting stronger, or the buying weaker.

Fundamentally, creeping into the minds of traders were concerns over demand due to worries over the slowing U.S. and global economies. The Fed contributed to the worries over domestic demand when they slashed their growth forecast and hinted the economy wasn’t strong enough to withstand any more rate hikes this year.

Further concerns over demand were raised when reports showed manufacturers in Europe, Japan and the United States suffered in March as surveys showed trade tensions had impacted factory output.

U.S. Energy Information Administration Weekly Report

Crude oil prices rallied mid-week after the U.S. Energy Information Administration reported that U.S. crude stockpiles fell by 9.6 million barrels for the week-ended March 15. Traders were looking for a build of 1 million barrels.

Supplies of gasoline also dropped by 4.6 million barrels, while distillates fell by 4.1 million barrels last week, according to the EIA. Traders were looking for supply declines of 2.1 million barrels each for gasoline and distillates.

Other News

According to energy services firm Baker Hughes, U.S. energy firms reduced the number of oil rigs operating for a fifth week in a row, cutting nine rigs to the lowest count in nearly a year as independent producers follow through on plans to cut spending with the government cutting its growth forecasts for shale output.

Weekly Forecast

We’ve been here before. Prices continue to be supported by the OPEC-led production cuts and the U.S. sanctions against Iran and Venezuela. And, concerns over demand continue to slow the rally. However, the first concern over demand was fueled by worries over a slowdown in China’s economy. Friday’s move was fueled by weak data from Europe. Additionally, the Fed may have sent a message that it expects a slowdown in the U.S. economy when it turned even more dovish by saying it would not raise rates this year.

If demand concerns continue to grow then prices are likely to become rangebound over the near-term. Any additional reports confirming a slowdown in the domestic and global economies are likely to continue to exert downside pressure.