Yahoo Finance Oil Price Fundamental Daily Forecast – US Producers Caught in the Middle of Saudi, Russia Spat
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Tuesday, but remain inside Monday’s extremely wide range. The price action indicates investor indecision and impending volatility.
Traders shouldn’t read too much into today’s rally since it is not likely to lead to anything like a change in trend after the markets posted their biggest daily loss in nearly 30 years after top producers Saudi Arabia and Russia launched a price war.
Bearish expectations are likely to keep a lid on any rallies. The only way I can see a sustained rally is if the Saudis and Russians agree to have a meeting to settle their differences. As it stands, the group formed by OPEC and its allies is set to expire on March 31. After that date, look for the Saudis to increase production. Others OPEC members may follow, causing a severe oil glut.
At 08:36 GMT, May WTI crude oil is trading $33.70, up $2.23 or +7.03% and May Brent crude oil is at $36.52, up $2.16 or +6.06%.
Narrative Controlling the Price Action
This is the story that will control the direction of crude oil for weeks to come, or until another production cut deal is reached, or global demand starts to rise.
Saudi Arabia plans to boost its crude output above 10 million barrels per day (bpd) in April from 9.7 million bpd in recent months, two sources told Reuters on Sunday. The kingdom also slashed its export prices at the weekend to encourage refiners to buy more.
IEA Predicts Oil Demand Contraction
The International Energy Agency (IEA) said oil demand was set to contract in 2020 for the first time since 2009. The agency cut its annual forecast and said that demand would contract by 90,000 bpd in 2020 from 2019.
Daily Forecast
On Monday, the U.S. Department of Energy said the Trump administration is monitoring the situation following oil’s steep slide, but words aren’t going to have any effect on prices at this time. Trying to find a price that makes Saudi Arabia, Russia and the United States comfortable is the key at this time.
OPEC producers have their budgetary needs. Russian is having cash flow problems and U.S. shale producers start losing money under $50 a barrel. So $30 crude oil is not going to cut it.
The Saudis have the lowest cost so they can afford to take a little heat. Russia may be willing to meet Saudi prices just to keep the cash flowing, but U.S. producers are likely to make deep spending cuts that lead to reduced production.
This article was originally posted on FX Empire
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