U.S. West Texas Intermediate crude oil futures and international-benchmark Brent crude oil futures are trading lower on Tuesday shortly before the regular session opening. Both markets edged a little higher early in the pre-market session, but the sellers regained control after buyers failed to take out yesterday’s high.
The markets are being underpinned by speculators betting an escalation of tensions in the Middle East will lead to a supply disruptions. This stems from Iran’s seizure of a British tanker last week. Gains are being capped, however, by demand concerns.
Providing the best support for crude oil prices are the OPEC-led production cuts and the U.S. sanctions against Venezuela and Iran.
We’re seeing some speculative buying due to concerns over a potential supply disruption, but this is a hit or miss situation. Last week, it was all miss. Yes, tensions could always flare up in the region, but until oil is actually lost, or a military battle begins, it’s really just a guess. It’s kind of like betting on a drought or a hurricane. We know what the consequences are, but we don’t know if or when there will be a trigger for a rally.
On the negative side, rising U.S. stockpiles are potentially bearish because increasing shale production could offset the positive effects of the OPEC cuts.
Recently, both the International Energy Agency (IEA) and OPEC warned about lower demand due to the weakening global economy. Additionally, Goldman Sachs on Sunday lowered its 2019 oil demand projection.
The early price action suggests demand concerns are outweighing supply worries in the Middle East. If the selling pressure continues throughout the session then we could see a retest of last week’s lows.
Expectations of another drop in U.S. crude inventories could soften the selling pressure, however. At 20:30 GMT, traders will get an opportunity to react to the latest inventories data from the American Petroleum Institute and on Wednesday, the U.S. Energy Information Administration reports. Analysts expect a 3.4 million-barrel drop in crude stocks for the week-ending July 19.
This article was originally posted on FX Empire
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