Oil Price Fundamental Daily Forecast – Concerns Over Trade Wars Driving Price Action
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U.S. West Texas Intermediate and international-benchmark Brent Crude Oil futures are trading sharply lower early Monday, reversing earlier gains as investors express concerns over a potential trade dispute between the U.S. and China.
At 0724 GMT, May WTI crude oil futures are trading $65.54, down $0.35 or -0.53%. June Brent crude oil is at $69.59, down $0.22 or -0.32%. Earlier in the session, WTI crude hit a new high for the year at $66.55. Brent posted a similar move hitting $70.30.
Traders are primarily reacting to the possibility of a trade war between the U.S. and China after President Donald Trump last Thursday signed a memorandum that could impose tariffs on up to $60 billion of imports from China.
Also encouraging investors to book profits after last week’s over 5-percent rally was the news of another rise in the number of U.S. rigs drilling for oil. According to Baker Hughes, the number of U.S. rigs drilling for oil hit a three-year high of 804. This implies further rises in production, which have already jumped by a quarter since mid-2016 to 10.4 million barrels per day (bpd).
Prices rose earlier in the session on speculation that the OPEC-led production cuts would be extended beyond the December 2018 deadline. The market is also being supported by concerns that the United States may re-introduce sanctions against Iran. This could disrupt supplies in the region.
Forecast
Volatility is likely to remain elevated today as traders try to determine which news event to follow. I’m leaning toward the downside today since a retaliation of the recent tariffs against China and Europe could take place at any time. This could set off another sell-off in the stock markets which should then affect demand for risky assets like crude oil.
Losses could be limited because next on tap is likely to be the re-introduction of sanctions against Iran.
Talk of any extension of the OPEC-led production cuts should not have too much of an effect on prices since discussions over the matter are not likely to take place until much later in the year.
A technical closing price reversal top today on the daily chart could lead to the start of a 2 to 3 day correction.
This article was originally posted on FX Empire