Oil fundamentals daily forecast – Rally may be stalled on concerns over US production

U.S. West Texas Intermediate and international benchmark Brent crude futures are trading early on Monday, supported by news that the United States and China have put a trade war between the world’s two largest economies “on hold.”

At 0857 GMT, July WTI crude was trading at $71.62, up $0.26, or +0.35%, and July Brent crude was at $78.77, up $0.26, or +0.32%.

US Treasury Secretary Steven Mnuchin said on Sunday that the US trade war with China is “on hold” after the world’s biggest economies agreed to drop tariff threats while they work on a broader trade deal.

In other news, the US oil rig count, an early indicator of future output, was 844, according to energy services firm Baker Hughes. This was the same number as the previous week, which marked the highest level since March 2015.

Forecast

Initial reaction to the US-China trade news is positive, as a full-blown trade war would have dealt a significant blow to global growth. However, there are some who say that without a further escalation in geopolitical risk, oil could be due for a short-term pullback.

There are also some who believe there is enough supply to meet demand, despite continued production cuts by the OPEC-led coalition, falling production in Venezuela and looming sanctions against major exporter Iran.

Current price action and fundamentals suggest that Brent crude is likely to form a near-term peak around $80 a barrel and retreat to at least $76.44 to $75.48.

Last week, WTI crude reached $72.37 before retreating slightly. A trade at $70.24 will change the downtrend on the daily chart, with $69.57 to $68.91 the primary downside target.

This article was originally posted on FX Empire

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