Oil Price Fundamental Weekly Forecast – U.S.-China Trade Deal Will Ease Concerns Over Future Demand

The theme last week in the crude oil market was volatility. U.S. West Texas Intermediate and international-benchmark Brent crude oil futures started and ended the week by posting steep sell-offs. In between these events, U.S. oil rebounded enough to produce a new high for the year. The early in the week sell-off was fueled by comments from President Trump. The mid-week recovery was triggered by Saudi Arabia’s response to the President’s comments. The week-ended with weaker-than-expected U.S. manufacturing data raising questions about future demand.

Last week, April WTI crude oil futures settled at $55.80, down $1.46 or -2.55% and May Brent crude oil finished at $65.07, down $2.18 or -3.35%.

The lack of fresh developments over U.S.-China trade relations weighed on prices at times as well as increased U.S. production. However, both concerns were offset by the OPEC-led production cuts which continued to tighten the global supply, and an unexpected drop in U.S. crude oil inventories.

Trump Triggers Early Break

The week started with WTI oil prices tumbling more than 3 percent on Monday after President Trump publicly urged OPEC to lower crude oil prices.

“Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!” Trump said in an early morning tweet.

Trump’s tweet was in response to the OPEC-led production cuts which began on January 1 and have been successful enough to trim the global supply glut. OPEC, along with its major ally Russia, meet in mid-April to review the deal, which is scheduled to last through the first six months of 2019.

Saudi Energy Minister Fuels Rebound Rally

Crude oil prices stabilized mid-week after Saudi Energy Minister Khalid al-Falih said OPEC is taking a measured approach to supply cuts.

“We are taking it easy,” he told CNBC, when asked about the U.S. president’s tweet.

“The 25 countries are taking a very slow and measured approach. Just as the second half last year proved, we are interested in market stability first and foremost.”

“We listen to the honorable president, and hear his concern about consumers and assure everybody, whether it’s him or developing country leaders, that we are focused on the interests of the global economy and consumers around the world as we are focused on the interests of producers,” al-Falih said.

Weak Economic Data Triggers Steep Decline

The strong rebound rally came to an abrupt end on Friday following the release of bearish U.S. manufacturing data which raised concerns over global energy demand growth. The catalyst behind the move was the ISM manufacturing activity index from February, which sank to its lowest level since November, while coming in below expectations. Additionally, China’s February factory activity fell for a third month as the world’s second largest economy continued to struggle with weak export orders, a private survey showed on Friday.

Weekly Forecast

Despite the steep sell-off last week, the market is likely to continue to be underpinned by the OPEC-led production cuts, and the U.S. sanctions against Iran and Venezuela. However, the selling pressure was real, which suggests the sell-off could continue until WTI and Brent crude oil reach value zones on the chart.

The value zone for April WTI crude oil is $50.44 to $48.68. For May Brent crude oil, the value area is $59.22 to $57.21.

The wild card is U.S.-China trade relations. Much of last week’s sell-off could be erased if the two economic powerhouses announce a trade deal. This news would ease concerns over lower future demand.