Oil Price Fundamental Daily Forecast – New Tariffs on China Will Worsen Demand Destruction
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Monday, paring some of last week’s gains, on worries a global oil glut may persist amid slumping demand and U.S.-China trade tensions that could restrict an economic recovery even as coronavirus pandemic lockdowns start to ease.
At 08:09 GMT, June WTI crude oil is trading $18.38, down $1.40 or -7.08% and June Brent crude oil is at $25.74, down $0.70 or -2.65%.
Fading optimism surrounding global growth prospects as well as a stronger U.S. Dollar is also weighing on dollar-denominated crude oil futures. Demand destruction is expected to be about 30 million barrels per day. Meanwhile, OPEC+ just started to reduce its daily output by 10 million barrels per day on May 1. Simple math shows that the cuts in production just won’t be enough to slow down the growing supply. And that is leading to storage problems.
Prices aren’t likely to stabilize much until the storage overflow is taken care of and with that issue, there is no end in sight. This may drive prices back toward $0.00 like they did in April when the May futures contract fell into negative territory for the first time in history.
Last week’s price action suggests that prices could find some support if the U.S. starts to make healthy production cuts. The top two U.S. producers, Exxon Mobil Corp and Chevron Corp, each said they would cut output by 400,000 barrels per day this quarter.
The output cuts combined with the loosening of business restrictions in some U.S. states and cities around the world were expected to ease the global fuel glut and pressure on storage tanks. This may help support prices this week.
In other news, U.S. drillers cut 53 oil rigs in the week to May 1, bringing the total count down to 325, the lowest since June 2016, energy services firm Baker Hughes said on Friday.
Daily Forecast
Over the weekend, a new threat to oil demand emerged. U.S. President Trump said he was considering raising tariffs on China to retaliate for the spread of the coronavirus. This renewed fears that trade tensions could curtail an economic recovery, putting a lid on oil price gains.
This story could overtake this week’s economic data in order of importance. If the Trump administration recommends new tariffs then look for prices to plunge.
This article was originally posted on FX Empire
