In the week since our last edition of What’s Affecting Oil Prices, Brent rose $2.22/bbl last week to average $74.03/bbl as WTI rose $1.51/bbl to average $67.64/bbl. We expect Brent to maintain its recent strength, averaging around $75/bbl this week.
Trade talks between Mexico and the U.S. have been ongoing throughout the weekend, as of this writing a breakthrough on a NAFTA agreement appears imminent. A newly revised and agreed-to NAFTA treaty would be supportive for prices as it bodes well for future demand by closing one front in the White House’s ongoing trade disputes.
On the geopolitical side, there will likely be headlines throughout the week about tensions with North Korea after Secretary of State Mike Pompeo abruptly canceled a planned visit. While the exchange of words is unlikely to lead to any concrete actions, it will highlight that this area of geopolitical risk is still very-much active.
Geopolitics will be a positive factor in the week ahead. North Korea continues to accuse the U.S. of inflammatory acts, and planning for an invasion, while some officials in the current Administration have publicly expressed frustration with North Korea’s lack of progress at denuclearization.
The dollar will be a negative factor in the week ahead as fears of emerging market weakness stemming from a strong dollar impact demand expectations and the dollar sees strength from a revised NAFTA agreement.
Trader Sentiment: Neutral
Trader sentiment will be a neutral factor in the week ahead.
Supply will be a neutral factor in the week ahead as medium term concerns about supply are offset by strong U.S. production.
Demand will be a positive factor in the week ahead. If Indian and Chinese purchases of U.S. crude remain strong heading into fall, this will be a positive for U.S. prices, which typically weaken as domestic refining runs seasonally decline.
Refining will be a positive factor in the week ahead, supported by strong product demand.
The weekly average Brent price fell $2.11/bbl last week to average $68.21/bbl. WTI fell even more sharply, down $3.80/bbl to average $57.01/bbl.
For the week ahead we expect Brent to be generally range-bound and average closer to $71/bbl on news out of OPEC, concerns about U.S. crude builds, and ongoing trade tensions with China.
Brent to average $61/bbl as prices pause and markets reevaluate economic expectations.