Crude Oil

Oil Price Fundamental Daily Forecast – Prices Plunge as Bearish Factors Pile Up

Surging U.S. inventories and escalating U.S.-China trade tensions are weighing heavily on U.S. West Texas Intermediate and international-benchmark Brent crude oil futures shortly before the regular session opening on Thursday. Technical factors are also contributing to the weakness with sellers driving U.S. crude through its 200-day moving average and Brent just hovering above this key support indicator.

At 11:50 GMT, July WTI crude oil is at $60.36, down $1.06 or -1.73% and August Brent crude oil is at $68.76, down $1.23 or -1.76%.

Brent Crude Oil
Daily August Brent Crude Oil

Bearish Factors

Surging U.S. crude inventories primarily caused by low refinery runs are driving prices sharply low for a second session on Thursday. According to the Energy Information Administration (EIA) weekly inventories report, U.S. crude stockpiles jumped to their highest levels since July 2017.

The EIA data showed commercial U.S. crude inventories rose by 4.7 million barrels in the week ended May 17, to 476.8 million barrels. The government also reported that U.S. crude oil production climbed by 100,000 barrels per day (bpd) to 12.2 million bpd. Last month, production hit a record 12.3 million bpd.

Weak refinery demand and the planned sale of U.S. strategic petroleum reserves (SPR) into the commercial market have also set up crude for its worst weekly performance in 6 months.

Ongoing Trade War Raising Fears about Weak Economic Growth

According to a report just released on Thursday, the latest aggressive actions against China are preventing trade negotiations with Beijing from proceeding, China’s Commerce Ministry said.

“If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue,” Ministry of Commerce spokesperson Gao Feng said Thursday in Mandarin, according to a CNBC translation.

“The U.S. … crackdown on Chinese companies not only seriously damages the normal commercial cooperation between both countries, but it also forms a great threat to the security of the global industrial and supply chain,” Gao said. “China is firmly opposed to this. We will closely monitor developments and make adequate preparations.”

Bullish Factors

Despite the build-up of bearish news, the market continues to be supported by the OPEC-led production cuts and the involuntary cuts by Iran and Venezuela due to U.S. sanctions.

Additionally, persistently high inventories likely means that OPEC and its allies are likely to continue to voluntary cut output beyond their current end-June deadline.

WTI Crude Oil
Daily July WTI Crude Oil

Daily Forecast

The fundamental pressures are not likely to go away today so they should continue to exert pressure throughout the session. Trader reaction to the 200-day moving average will likely determine if the price plunge continues or if there is an intraday reversal to the upside.

July WTI crude oil futures are currently trading below its 200-day moving average which comes in at $60.67. August Brent crude oil futures just took out its 200-day moving average at $68.65.

The 200-day moving average is very important to the structure of the market because many hedge firms use it to determine the trend in the market.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.