Crude Oil

Oil Price Fundamental Weekly Forecast – Could Be Forming Trading Range

U.S. West Texas Intermediate and international benchmark Brent crude oil futures settled higher for the first week in three last week. The markets were underpinned by a bullish U.S. Energy Information Administration’s weekly inventories report, Saudi Arabia’s halt on transporting crude through a key shipping lane, and the easing of trade tensions between the United States and European Union.  However, gains were limited because of concerns over the lingering trade dispute between the United States and China, which threatens global economic growth.

September WTI crude oil settled at $68.69, up $0.43 or +0.63% and October Brent crude oil closed at $74.76, up $1.62 or +2.21%.

Fundamental Data

Official U.S. data showed U.S. crude oil inventories last week declined more than expected to their lowest level since 2015 as exports climbed and stocks at the Cushing futures hub dropped.

Crude inventories fell 6.1 million barrels in the week-ending July 20, versus analyst expectations for a decrease of 2.3 million barrels, the U.S. Energy Information Administration said on Wednesday.

At 404.9 million barrels, inventories, not including the nation’s emergency petroleum reserve, were at their lowest level since February 2015.

Key Price Driver

According to reports, Saudi Arabia, the world’s biggest oil exporter, said on Thursday that it was “temporarily halting” all oil shipments through the strategic Red Sea lane of Bab al-Mandeb after an attack on two big oil tankers by Yemen’s Iran-aligned Houthi movement.

Saudi Energy Minister Khalid al-Falih said in a statement that the Houthis had attacked two Saudi Very Large Crude Carriers in the Red Sea on Wednesday morning, one of which sustained minimal damage.

“Saudi Arabia is temporarily halting all oil shipments through Bab al-Mandeb Strait immediately until the situation become clearer and the maritime transit Bab al-Mandeb is safe,” the minister said.

Welcome News

On Wednesday, U.S. President Donald Trump and Jean-Claude Juncker, president of the European Commission, the EU’s executive body, struck a surprise deal that ended the risk of an immediate trade war between the two powers.

Despite the good news regarding the US and EU, crude oil traders were still on edge over the trade dispute between the US and China. Some feel that prolonged tensions could lead to a global economic slowdown that could trigger a drop in demand for crude oil.

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If the light volume on Friday is any indication, crude oil prices could slide into a trading range over the near-term. With the sanctions against Iran already priced into the market, traders are likely to continue to react to the Saudi’s halting of shipments and low U.S. inventories. These two events are supportive. Continued weakness in U.S. equity markets could limit gains, however, or weigh on prices.

The wild card for heightened volatility is the granting of exemptions against the Iranian sanctions, and the addition of further U.S. tariffs on China.

In other news, Friday’s robust GDP report suggests increasing future demand, but only if the trend continues during the second half of the year.

U.S. energy companies added three oil rigs in the week to July 27, the first time in the past three weeks that drillers have added rigs, General Electric’s Baker Hughes energy services firm said on Friday.

Finally, Russian energy minister Alexander Novak said on Friday the market remained volatile and responded to verbal interventions. He added that the market had priced in risks related to U.S. sanctions against Iran.

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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.