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Oil Price Fundamental Daily Forecast – Chinese Imports Rise Helps Widen Brent/WTI Spread

Short-term, the crude oil market looks bullish, but as WTI and Brent futures contracts approach the 50% retracement levels from their October highs to their December lows, the rally should stall. This is because the market is still oversupplied.

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Thursday on hopes of a timely end to the U.S.-China trade dispute and stronger-than-expected Chinese trade figures that include crude imports that beat forecasts. Brent crude oil continued to outperform WTI, hitting its highest level since November 21 while the U.S. contract remained below its early February high.

At 08:08 GMT, April WTI crude oil futures are trading $54.84, up $0.54 or +0.99% and April Brent crude oil is at $64.37, up $0.78 or +1.19%.

Most importantly, the spread between Brent crude oil and WTI crude oil has risen from a low of $6.80 on January 31 to a high of nearly $10.00. This is the result of a combination of the OPEC-led production cuts and the sanctions against Venezuelan exports, which are supportive for Brent crude oil, and the rising U.S. production, which is helping to limit gains for WTI crude oil.

Trade Deal Optimism

Traders are saying that positive chatter about the on-going high-level U.S-China trade negotiations in Beijing are helping to support prices because an end of the trade dispute should drive up crude oil demand for the world’s second largest economy.

Rising Chinese Imports Supportive

Today’s Trade Balance report from China is also providing support for crude oil prices early Thursday. The report showed China’s crude oil imports in January rose 4.8 percent from a year earlier to an average of 10.03 million barrels per day (bpd). This marked the third straight month that imports have exceeded the 10 million bpd level.

U.S. Supply Capping WTI Gains

While the news about rising Chinese imports was especially bullish for Brent crude oil futures, the news from the U.S. government’s weekly inventories report wasn’t particularly bullish for WTI crude prices.

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According to the U.S. Energy Information Administration’s weekly inventories report for the week-ending February 8, U.S. crude oil stockpiles rose last week to the highest since November 2017 as refiners cut runs to the lowest since October 2017.

Crude oil inventories built for a fourth week in a row, rising 3.6 million barrels to 450.8 million barrels in the week to February 8. Traders were looking for an increase of 2.7 million barrels.

Daily Forecast

Short-term, the crude oil market looks bullish, but as WTI and Brent futures contracts approach the 50% retracement levels from their October highs to their December lows, the rally should stall. This is because the market is still oversupplied.

According to the International Energy Agency, the global oil market will struggle this year to absorb fast-growing crude supply from outside the Organization of the Petroleum Exporting Countries (OPEC), even with the group’s production cuts and U.S. sanctions on Venezuela and Iran.

Furthermore, the IEA said it expected global oil demand this year to grow by 1.4 million bpd, while non-OPEC supply will grow by 1.8 million bpd. This doesn’t bode well for the long-term crude oil bulls.

This article was originally posted on FX Empire

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