Crude oil futures finished mixed last week with U.S. West Texas Intermediate finishing higher and international-benchmark Brent lower. The news was mixed too with buyers focusing on the possibility of additional production cuts by OPEC and its allies, and trending growth in the U.S. economy. Sellers were worried about a global recession and its impact on future demand. These concerns were confirmed by a bearish report from OPEC.
Possible OPEC Production Cuts Drove Early Strength
Early in the week, the markets were underpinned by optimism over potential production cuts by OPEC. A Saudi official on August 8 indicated more steps may be coming, saying “Saudi Arabia is committed to do whatever it takes to keep the market balanced next year.”
Recession Fears Kept Lid on Prices
Recession fears were raised earlier in the week after the bond market flashed a troubling signal about the U.S. economy. This increased worries over lower future demand. The fears were triggered when the yield on the benchmark 10-year Treasury note briefly broke below the two year rate, “an odd bond market phenomenon that has been a reliable indicator of economic recessions,” according to CNBC.
EIA Reports Surprise Inventories Build
On Wednesday, the government reported that U.S. crude stocks grew by 1.6 million barrels the week-ending August 9, compared with analyst expectations for a decrease of 2.8 million barrels, as refineries cut output, the EIA said in a report.
Additionally, at 440.5 million barrels, inventories were about 3% above the five-year average for this time of year, the EIA said.
OPEC Reveals Bearish Outlook
Late in the week, OPEC provided a downbeat oil-market outlook for the rest of 2019 as economic growth slows and highlighted challenges in 2020 as rivals pump more, building a case to keep up an OPEC-led pact to restrain supplies.
“While the outlook for market fundamentals seems somewhat bearish for the rest of the year, given softening economic growth, ongoing global trade issues and slowing oil demand growth, it remains critical to closely monitor the supply/demand balance and assist market stability in the months ahead,” OPEC said in the report.
Traders are focusing on two things: Possible OPEC production cuts and lower demand due to a weakening global economy. They don’t seem to be too worried about U.S. growth at this time. However, they are expressing concerns about the rising U.S. production.
Unless there is an escalation of tensions over a global recession, WTI and Brent are likely to remain rangebound. We could actually see an upside bias develop as traders continue to build confidence in dovish central bank policies providing the stimulus needed perk up the global economy.
This article was originally posted on FX Empire
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