Trade Wars And An Emerging Market Crisis Likely To Keep Oil Volatile

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Fundamental Forecast for US OIL: Neutral

FUNDAMENTAL CRUDE OIL PRICE TALKING POINTS:

The ONE Thing: A massive build in refined crude products in the US in Thursday’s EIA data put a sour taste in the mouth of oil bulls. Given the concern of global demand and the decoupling of US risky assets to other markets, there is a lot of weight being placed on US demand to keep the market afloat, and the build of distillate stockpiles may warn that demand is waning.

Emerging Markets are key sources of global oil demand, and the route in EM demand has set crude on pace for its biggest weekly decline since July. Key commodities like Brent & WTI crude may continue to feel the pain as EM currencies continue to slide.

Per BHI, U.S. total rig count remains 1048; US Oil rigs fall by 2 to 860

Next week will see the EIA’s monthly Short-Term Energy Outlook on Tuesday, and the IEA is due to release their monthly market report on Thursday.

The technical picture has both sides confused as a breakout on Tuesday was quickly reversed to a 6% drop, but Bulls are counting on a higher-low developing.

The drop in gasoline demand was the highlight of the delayed EIA Crude Oil Inventory Report on Thursday despite a bigger-than-expected in crude. Derivatives of energy like the S&P Oil and Gas E&P Index has moved lower this week while Crude, and other energy products all look susceptible to further losses.

On the positive side, China’s demand for crude doesn’t appear to be going away. While still considered an emerging market, China’s demand is often the final say for commodities though commodity bulls would be happier if Brazil, South Africa, Turkey, Argentina, Venezuela, Indonesia, and others were not in the midst of a crisis, at least China’s demand appears set to increase steadily.

China’s demand is seen through the lens of Rongsheng Petrochemical; a mega-refiner is set to buy crude from Iran after the sanctions are initiated from the US. China refiners have been a customer worth fighting for as Saudi has also been said to be courting petrochemical companies in China as a way to help solidify state revenues in the future.