U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly lower early Tuesday on concerns that a slowing global economy will lead to lower demand. Looking at the bigger picture, the markets are beginning to take on a sideways look with gains being capped by international trade disputes and losses being limited by a potential conflict between the United States and Iran.
Lingering and Escalating Demand Issues
Lingering concerns due to the U.S.-China trade dispute continue to dampen prospects for global economic growth, which in turn are raising issues over future demand. It should be noted that the economic powerhouses are also the world’s two largest oil consumers.
In Japan, new evidence showed that the trade dispute could also have a negative impact on Japanese crude oil demand. On Tuesday, the Japanese government reported that Japan’s core machinery orders fell by the most in eight months.
Escalating Supply Worries
Iran continued to come closer to provoking the United States into taking military action when it threatened on Monday to restart deactivated centrifuges and step up its enrichment of uranium to 20% in a move that further threatens the 2015 nuclear agreement that Washington abandoned last year.
Goldman Sachs said growth in U.S. shale production was likely to outpace that of global demand at least through 2020. This would likely offset any gains from the recently renewed OPEC-led supply cuts.
We’re looking for a sideways trade for most of the session on Tuesday. Volatility could pick up later in the day with the release of the American Petroleum Institute’s Weekly Inventories report at 20:30 GMT. It is expected to show that stockpiles fell for a fourth consecutive week. Traders are looking for a 3.6 million barrel draw down.