Oil Price Fundamental Weekly Forecast – Traders Focusing on US-China Relations, Saudi Facility Repairs

We’re getting close to the same bearish state the market was in just before the attacks on Saudi Arabia. However, conditions could turn bullish quickly if there are any delays in the repairs of Saudi oil facilities since the market has very low spare capacity at this time. Traders are also watching U.S.-China trade relations with the two economic powerhouses expected to meet on October 10-11.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures settled lower last week, weighed down by renewed concerns over supply and lingering worries about demand. The selling pressure was intense enough to erase the risk premium in the U.S. crude oil market placed by traders following the attacks on Saudi Arabian oil facilities on September 14. The gap on the Brent chart remained, but was reduced to pennies.

Last week, November U.S. WTI crude oil futures settled at $55.91, down $2.18 or -3.75%. December Brent crude oil finished at $61.04, down $2.16 or -3.54%.

A combination of bearish supply and demand news helped fill in the price gap left by the strong jump in prices the week-ending September 20, which indicates dampened concerns over an escalation of tensions in the Middle East and increased worries about demand. A number of factors pressured prices throughout the week including U.S.-China trade relations, Saudi facility repairs, rising U.S. supply and U.S-Iran sanctions.

Early in the week, crude oil prices were supported by optimism over improving U.S.-China trade relations with both sides making gestures the past two weeks to ease tensions. Prices tumbled, however, after President Trump said he would not accept a “bad deal” with China.

Prices were further pressured on Wednesday after the EIA reported a 2.4-million barrel build in crude oil inventories for the week-ending September 20. Analysts were looking for a draw of 300,000 to 800,000 barrels.

Also on Wednesday, Bloomberg reported that Saudi Arabia is recovering faster than expected from the attacks ever on its oil industry, beating its own target for restoring capacity by about a week.

Following a steady to lower opening on Friday, crude oil plunged after Iranian President Hassan Rouhani claimed the U.S. offered to remove all sanctions on Iran in exchange for negotiations. President Donald Trump and the State Department later denied those claims, causing oil to rebound slightly from the intraday low.

On the supply side, easing tensions between Saudi and Yemen could lead to increased supply since it lowers the chances of an escalation of further attacks on Saudi oil fields. The Wall Street Journal reported, citing unnamed sources that Saudi Arabia had agreed to a partial ceasefire in Yemen.

Demand worries also intensified after the IEA said it might cut its estimates for global oil demand.

Weekly Forecast

With supply recovering and demand growth concerns increasing, momentum is clearly to the downside.

We’re getting close to the same bearish state the market was in just before the attacks on Saudi Arabia. However, conditions could turn bullish quickly if there are any delays in the repairs of Saudi oil facilities since the market has very low spare capacity at this time. Traders are also watching U.S.-China trade relations with the two economic powerhouses expected to meet on October 10-11.

We’re still in a news driven market and vulnerable to wicked two-sided price swings. If conditions continue to improve between the United States and China then the market may find support. Furthermore, increased tensions between the U.S. and Iran will be supportive. Additionally, any new issues with the Saudi facility repairs could be bullish.

On the downside, a failure to reach a trade deal, faster than expected repairs and an easing of tensions in the Middle East are all bearish factors.

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