Oil Price Fundamental Weekly Forecast – U.S-China Trade Talks Providing Some Optimism for Bulls

U.S. West Texas Intermediate and international-benchmark Brent crude oil finished lower for a third consecutive week and its sixth weekly lower close out of seven amid increasing concerns about slowing global economic growth that could hit demand for petroleum products.

Last week, October WTI crude oil settled at $65.21, down $1.73 or -2.58% and October Brent crude oil finished at $71.83, down $0.98 or -1.35%.

Additional bearish factors included data released earlier this week showing a large build in U.S. inventories. The crisis in Turkey also contributed to the weakness by driving up demand for the U.S. Dollar. This lead to a broad sell-off in dollar-denominated commodities including crude oil.

Traders are also concerned about the impact of the U.S. tariffs on China. Asian demand is showing signs of slowing down as trade disputes and a stronger dollar drag the economies of some of the world’s largest oil buyers.

Drop in Saudi Production

It was a promising start for the week as prices rose on reports of production cuts in July by top exporter Saudi Arabia after it agreed to start pumping more crude. The Saudis throttled back drilling last month after agreeing with OPEC, Russia and several other producers to put more barrels on the market in June.

U.S. Inventories Report

The bulk of the loss last week came on Wednesday after the release of a bearish government report. The U.S. Energy Information Administration said yesterday that crude oil inventory levels rose by 6.8 million barrels, to 414.19 million barrels. Traders were looking for a 2.6 million barrel draw down.

The EIA also said that U.S. crude production rose by 100,000 barrels per day (bpd) in the week-ending August 10, to 10.9 million bpd.

Weekly Rig Count

In other news, the number of U.S. oil drilling rigs, an indicator of future production, were unchanged in the week at 869 rigs, according to a weekly report from energy company Baker Hughes on Friday. Last week, drillers added 10 oil rigs, the biggest rise since May.

Forecast

The news that the U.S. and China will renew trade talks in late August may provide enough optimism to fuel a short-covering rally back into resistance, but without a permanent solution to the trade dispute, this rally is likely to be met with fresh selling pressure.

At this time, the fundamentals are bearish so it’s probably going to take a supply disruption to drive prices sharply higher.