Oil Looks to OPEC Monthly Report, US CPI and Trade Developments

Oil Fundamental Forecast: Neutral

Talking Points:

  • Crude oil prices hurt by sentiment declines, Trump ordered consideration of more China tariffs
  • Next week brings typical event risk such as EIA inventories and even March’s US inflation data
  • Atypical events include the monthly OPEC oil market report and International Energy Forum

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Crude oil prices came under pressure this past week as trade war fears and an overall decline in sentiment overshadowed developments on the production and inventory front. During the beginning of the week, US stocks were in the red coming out of a holiday, weighed down by the technology sector as President Donald Trump continued to attack Amazon.com.

Oil prices though rebounded a later on as EIA inventories fell by the most since early January. Saudi Arabia also unexpectedly increased the price of its Arab Light crude afterwards. Then, towards the end of the week, the mood suddenly turned sour once again as Mr. Trump ordered the consideration of additional $100b of tariffs on China goods. Crude oil quickly reversed the progress it made in the prior days.

The week ahead is loaded with event risk for oil. Starting with the usual, API inventory estimates could give an idea of what’s to come on Wednesday when official EIA data crosses the wires. In addition, keep an eye out for March’s US CPI report which is also due on the same day. Headline inflation is expected to rise by the most in one year at 2.3% y/y. If the US Dollar rises on such an outcome, oil prices could fall since they are denominated in USD terms on global markets.

Aside from those, on Tuesday the International Energy Forum will be held in New Delhi. There, OPEC’s Secretary Mohammad Barkindo and Russia’s Energy Minister Alexander Novakwill be present. One of the topics is global market shifts and energy transition shaping the future of energy security. A prominent agenda given the rise of fully electric vehicles which threatens the use of petrol to a certain extent. Perhaps we can get an idea of what the outlook for oil consumption could be amidst this.

Then on Thursday we will get this month’s OPEC oil market report which covers major issues affecting the world crude market and offers an outlook. Last time, a glut in oil thanks to non-OPEC production caused the cartel to reduce the supply more than anticipated. This hints that their efforts to curb the supply with Russia are having unintended consequences. For example, US rig counts have increased from about 400 in mid-2016 to almost 1,000 as of recently. A similar response this time via more cuts could bolster the commodity.

As it has been recently, ongoing negotiations and developments with US and Chinese tariffs present a risk for oil as they unfold. With the former considering further actions on the latter, a response from China seems all but inevitable. In addition, Trump’s new National Security Advisor John Bolton takes command on April 9th. An avid hawk, his appointment pushed crude oil higher due to the fear of supply disruption. Taking into account the plethora of event risk, the oil fundamental forecast will have to be neutral.

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--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

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