U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are treading mixed early Monday. Both markets are experiencing a rangebound trade on low volume, however, U.S. crude is being offered down, and international crude is being bid up slightly.
The lack of follow-through to the upside early Monday after positive price action since last Wednesday’s U.S. Energy Information Administration’s weekly inventories report indicates traders are becoming increasingly concerned about fuel demand. This comes on the heels of a report from over the week-end that finance ministers and central bank governors from the G20 warned economic growth risks have increased amid rising trade and geopolitical tensions.
These officials, meeting in Buenos Aires over the weekend called for more dialogue to prevent trade and geopolitical tensions from hurting growth.
“Global economic growth remains robust and unemployment is at a decade low,” the finance leaders said in a statement. “However, growth has been less synchronized recently, and downside risks over the short and medium term have increased.”
In other news, hedge funds and money managers cut their bullish wagers on U.S. crude for the first time in nearly a month, a further sign of weaker sentiment for the market. According to the U.S. Commodity Futures Trading Commission (CFTC), the speculator group pared their combined futures and options positions by 34,067 contracts to 423,650 in the week to July 17.
The report on Friday from General Electric’s Baker Hughes showing drillers cut 5 oil rigs in the week to July 20, didn’t spike WTI crude oil higher on Monday, but it may be underpinning prices early in the session. However, news of a potential reduction in U.S. output is not a key issue today. Traders are more worried about demand.
The recent price action demonstrates that OPEC and other major producers like Russia and the U.S. can manipulate supply, but they have a hard time controlling demand. They can wait out seasonal demand like summer driving season, but they are going to have a hard time with low demand fueled by a weakening global economy.
Today’s early price action suggests that investors are considering concerns over demand, but not really reacting to the issue. This issue could rear its ugly head later in the year if data shows the trade disputes are disrupting the global economy.
Underpinning the market so far today may be the same factors that supported the market late last week, concerns over a shortage of spare capacity should another supply disruption occur and the news that Saudi Arabia would reduce exports in August.
WTI is trying to establish on the bullish side of a long-term technical retracement level at $67.99. Trader reaction to this level will determine the direction of the market this week. If a rally does gain traction then look for a possible rally into $69.64 to $70.42 before new sellers show up to stop the move. If $67.00 fails then look for a potential plunge into $66.81 then $66.29.