Oil Price Fundamental Weekly Forecast - It's Demand Worries Versus OPEC Production Cuts

Brent Oil Price Drops Below $58 per Barrel for First Time in Six Months

This was the second week that the US crude oil production increased after decreasing for two consecutive weeks.

U.S. West Texas Intermediate (WTI) crude CLc1 futures fell 97 cents, or 1.74%, to settle at $54.69 a barrel, finding some support from a draw in inventories at the Cushing, Oklahoma, storage hub and delivery hub for WTI.

The U.S. surge has tapered off in recent months as shale drillers confront the geological challenges arising from rapid expansion, as well as pressure from shareholders seeking a better return on their investments.

"We believe the oil market is starting to price in the fear of a severe and multi-year breakdown in U.S".

U.S. shipments surged by 260,000 barrels per day (bpd) in June to a monthly record of 3.16 million bpd, U.S. Census Bureau data showed on Friday. Prices have lost 24.5% since their 2019 peak in April.

Rystad Energy said the oil market was going "from gloomy to gloomier", calling into question the consultancy's own bullish view for the first part of 2020.

"The market is anxious about the broader trade war escalation, Donald Trump and his Twitter finger and indications sliding demand growth will impact the global economy", said Michael Tran, commodity strategist at RBC Capital Markets.

The OPEC+ alliance, which spans the 14 OPEC nations and 10 non-members such as Russian Federation, pledged at the start of this year to reduce daily output by 1.2 million barrels a day.

Markets also seemed concerned about the possibility that China may begin importing larger volumes from the USA sanctioned Iran, especially in view of the escalating trade war with Washington. "This could lead to reduced trade activity and less oil demand growth".

Brent has plunged almost 14% since last week as global equity markets went into a tailspin after U.S. President Donald Trump said he would slap a 10% tariff on a further $300 billion in Chinese imports from September 1.

Russia's Energy Ministry said the the outlook for global oil demand that the IEA forecast confirms the need for OPEC+ cooperation. The country's production will be lower in September than this month, they said.

Saudi Arabia, the world's largest oil exporter, has already cut production more than required under an agreement between the Organization of Petroleum Exporting Countries and allies outside of the group to help drain inventories and reach market stability.

Looking ahead, the risk sentiment will remain the main market driver for risk assets such as oil, with the Yuan recovery having alleviated currency war fears and triggered risk-on market profile.

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