Crude Oil Price Analysis for June 20, 2017

Oil prices continue to trade under pressure as rumors of issues with the current OPEC deal are making the rounds. This is because Libya, whos production was by civil unrest, and oil export terminals blockades isnow targeting to further increase its oil output, up to as much as 1-million barrels per day.  If Libyan production can climb to this level by the end of July, it would further complicate OPEC’s desperate efforts to reduce global inventories and prop up oil prices.

Technicals

Crude oil prices dropped 1.14% on Monday, as increasing Libyan output and climbing rig counts continue to weigh on prices.  WTI is testing trend line support generated from connecting the lows in November to the lows in May and come in near $44.10.  Resistance on crude oil prices is seen near the 10-day moving average at 45.61. Prices continue to generate a topping pattern, with a quadruple top in place. Momentum is negative as the MACD (moving average convergence divergence) histogram prints in the black with downward sloping trajectory which points to lower prices.

Libya is Creating Output Issues

Libya is exempt from production cuts, and last month when OPEC was determining how much to cut, Libya hit its highest daily production level since 2014. Earlier this week, OPEC reported that total cartel production in May was higher than in April, with Libya the biggest single contributor to that increase. While Libya’s increase in production is robust, production could sharply drop again, given the political rivalry between factions and the fragile security situation in country.

Libya might be able to increase production to 1 million barrels per day, or Libya’s unrest could cause a drop in production. For this reason, Libya’s production over the next few months is one of the wildest wild cards for OPEC and global oil supply.

The oil market has started showing signs that it is headed in the right direction, and current expectations point to the market returning to balance in the fourth quarter this year, Saudi Oil Minister Khalid al-Falih told London-based Arab daily Asharq al-Awsat in an interview published on Monday.

“In my opinion, market fundamentals are going in the right direction, but in light of the large surplus in stockpiles over the past years, the cut needs time to take effect,” al-Falih. “Current expectations indicate the market to rebalance in the fourth quarter of this year taking into account an increase in shale oil production,” the minister noted.

Referring to the global glut, the Saudi minister said that there was a relatively big draw of around 50 million barrels from floating storage facilities and a drop in OECD onshore storage of 65 million barrels compared to July last year. With regards exempt Libya and Nigeria, the Saudi minister said that the two countries’ output levels are within the range that OPEC had set when it forged the deal last year.  Earlier this month, both Saudi Arabia and Russia continued to claim that the OPEC deal was working fine, with al-Falih saying that the decline in global inventories that had already started would speed up in the next three to four months.

Saudi Arabia Spoils Attacks

After last week’s attack on several vessels in the Bab Al Mandab, Middle East offshore oil operations again have been hit. According to Saudi Arabia’s national news agency SPA an attack on a major offshore oil field has been prevented. Saudi military sources have reported that the Al Marjan offshore oilfield was attacked by three boats “bearing red and white flags”. Warning shots have been fired, one vessel has been captured, while two others have escaped on Friday. The Saudi military reported that the captured boat “was loaded with weapons for a subversive purpose.” No details were given by the Saudi officials on a possible group or country behind the attack.

Japanese Exports Increase in May

Japan’s exports increased sharply in May, rising 14.9%, which was the fastest in more than two years on higher shipments of cars and steel. This was the largest increase in exports since January 2015, and double the pace seen in April.  Expectations were for a 16.1% increase. Imports also increased more than expected in May, due to demand for intermediate goods. Japan’s exports to the United States rose 11.6% percent in May year over year. The trade surplus with the United States was 411.1 billion yen in May, up 19.0% percent from the same period a year ago.