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Oil Price Fundamental Daily Forecast – Underpinned by White House Officials’ Comments, Drone Attack; Capped by Demand Worries

James Hyerczyk

Supply disruption fears are underpinning U.S. West Texas Intermediate and international-benchmark Brent crude oil futures early Monday after a weekend attack on a Saudi oil facility by Yemeni separatists. An easing of tensions over a U.S. recession is also providing some support. Additionally, expectations that the major central banks will continue to provide additional stimulus in an effort to perk up their slowing economies are also providing support.

At 07:45 GMT, October WTI crude oil is at $55.56, up $0.75 or +1.36% and December Brent crude oil is at $58.55, up $0.88 or +1.53%.

Despite today’s upbeat outlook, gains remain capped by a surprisingly bearish OPEC report that added fuel to concerns about growth in oil demand.

Essentially, the markets are being supported by a shift in investor sentiment that suggests central bankers will make enough decisive moves to prevent a global recession and heightened geopolitical tensions in the Middle East.

Trade Talks to Resume

Over the weekend, White House economic adviser Larry Kudlow said trade deputies from the United States and China would speak within 10 days and could advance negotiations over ending the trade dispute between the two economic powerhouses if those talks pan out.

President Trump’s Trade Adviser Peter Navarro said the U.S. still has “significant structural issues” with China, while Kudlow looked forward to a “substantive renewal” of talks with Beijing. He provided no specifics on the as-yet unrevealed “positive news” out of recent telephone talks between the two sides.

What Recession?

Kudlow also pushed back on the notion that the U.S. economy is headed toward a recession.

“I don’t see a recession at all,” Kudlow said on Fox News Sunday. He added that there were no plans for additional fresh measures to boost the economy, and that the Trump administration would stay the course on its current agenda.

“Consumers are working. At higher wages. They are spending at a rapid pace. They’re actually saving also while they’re spending – that’s an ideal situation,” he said on NBC’s Meet the Press.

On CNN, Navarro disputed that the U.S. had seen an inverted yield curve, often a forerunner of recession because it signals market expectations for weaker growth ahead.

Saudi Oil and Gas Facilities Hit by Enemy Drone

According to CNBC, a drone attack by Yemen’s Houthi group on an oilfield in eastern Saudi Arabia on Saturday caused a fire at a gas plant, adding to Middle East tensions, but state-run Saudi Aramco said oil production was not affected. Nonetheless, the attack raised fears of a potential supply disruption should conditions escalate.

OPEC Issue Bearish Report

On Friday, a report showed OPEC cut its forecast for global oil demand growth in 2019 by 40,000 barrels per day (bpd) to 1.10 million bpd and indicated the market would be in slight surplus in 2020.

Rig Count Rises

On Friday, Baker Hughes announced that U.S. energy firms this week increased the number of oil rigs operating for the first time in seven weeks despite plans by most producers to cut spending on new drilling this year.

Daily Forecast

We’re looking for an upward bias today as long as Treasury yields continue to firm and demand for risk increases. Basically, the market will be underpinned as long as the trade war doesn’t escalate and fears of a recession continue to subside. However, the news is not likely to offset concerns over lower demand.

This article was originally posted on FX Empire