Oil Price Fundamental Daily Forecast – Dovish Powell Will Be Supportive, but Not Enough to Offset Trade War Concerns

James Hyerczyk

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sideways-to-lower on Friday shortly before the regular session opening and a key speech by Federal Reserve Chairman Jerome Powell that could set the near-term tone of the market. Earlier in the session, the markets were pressured by demand concerns, but also supported by reports of tighter supplies from key producers, leading to the almost flat trade.

At 10:25 GMT, October crude oil futures are trading $55.25, down $0.11 or -0.20% and December Brent crude oil is at $58.86, down $0.09 or -0.15%.

We’re expecting a quiet trade until 14:00 GMT when Powell will give his speech at the central bankers’ symposium in Jackson Hole, Wyoming. He is expected to provide clues on whether the Fed will cut interest rates for a second time in two months to perk up the economy and prevent a global recession.

Simply stated, crude oil prices are likely to fall if Powell comes across as dovish by reiterating the Fed’s “mid-cycle adjustment” narrative. This refers to the central bank’s 25-basis point rate cut in July, which according to policymakers was not the beginning of a series of rate cuts.

At this time, the markets have priced in a 25-basis point rate cut for September and as many as four more over the next 12 months. Powell will have to match this assessment with clarity and conviction in order to convince the markets that the Fed is serious about extending the current expansion.

Crude prices are likely to rally today if Powell is hawkish and supports additional rate cuts. However, gains could be limited as long as there are lingering worries over U.S.-China trade relations. Both the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) have cut demand growth forecasts due to risks to the global economy from the trade war between the two economic powerhouses.

Continuing to provide support are the OPEC-led production cuts and simmering tensions in the Middle East. Rising U.S. production, however, is coming close to off-setting the cuts in output although there is talk of a future reduction of OPEC production.

This article was originally posted on FX Empire