Crude Oil Price Forecast – Prices Rise Despite Higher Saudi Production

Crude oil prices moved higher on Tuesday ahead of Wednesday Energy Department forecast on inventories.  Prices rose despite reports that Saudi Arabia is already increasing production which could further weigh on prices.  OPEC is scheduled to meet on June 22, and it appears that countries are split on whether to increase production.  Iraq and Iran are opposed while Saudi Arabia is in favor of production increases.

Technicals

Crude oil prices rose moving above former resistance now support near the 10-day moving average at 66.01.  Additional support is seen near an upward sloping trend line that comes in near 64.40. Resistance is seen near the June highs at 66.70.  Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Negative momentum is decelerating as the MACD (moving average convergence divergence) histogram prints in the red with a rising trajectory which points to consolidation.

Saudi’s Increased Output

Saudi Arabia pumped over 100,000 barrels per day of crude oil more in May, with daily production reaching 10 million barrels per day, officials from the country’s reported. The news comes on the heels of Russian media reports that the country’s oil production recovered to 11.1 million barrels. This is 143,000 barrels per day above the country’s quota under the OPEC+ production cut deal, and only about 100,000 barrels per day below the record-breaking production rate in November 2016, which Russia took as basis for its cuts.

On Monday, Iraq’s Oil Minister Jabbar al-Luiebi said Baghdad “rejects unilateral decisions by some oil producers without consulting the rest of the members” of OPEC, clearly signaling that Saudi Arabia, leader of the OPEC pack as it may be, is not free to raise production without telling anyone about it.

CPI Rose in May in Line with Expectations

U.S. CPI rose 0.2% in May, with the core up 0.2%, both in line with expectations. There were no revisions to April where consumer prices were up 0.2% overall, and 0.1% excluding food and energy. The annual pace accelerated to 2.8% year over year for the headline from 2.5% year over year, and 2.2% year over year for the core versus 2.1% year over year. Energy prices were 0.9% higher following the 1.4% April bounce, and are up 11.7% year over year. Transportation prices edged up 0.4% versus the prior 0.2% gain. Services costs rose 0.2% from 0.1%. Housing costs were up 0.2% from 0.3%, with owners’ equivalent rent 0.2% higher from 0.3%. Apparel prices were unchanged after a 0.3% gain. Medical care costs rose 0.2% after April’s 0.1% gain. Education and computer prices rose 0.4% from unchanged. Tobacco prices were up 0.4% from 1.3%.

U.S. chain store sales bounced

U.S. chain store sales bounced 1.7% in the week ended June 9, according to The Retail Economist, after plunging 5.6% in the June 2 week. The annual pace accelerated to a 4.4% year over year clip versus the prior 3.8% year over year rate. The report noted consumer demand remains quite healthy in the second quarter of the retail calendar, while easier comparisons are helping boost the year over year pace.

UK labor data revealed a softening in wage growth

UK labor data revealed a softening in wage growth, which dipped to 2.5% year over year growth in the three months to April, down from 2.6% year over year in the month prior and below the median forecast for an unchanged 2.6% year over year outcome. The ex-bonus income figure dipped to a growth rate of 2.8% year over year from 2.9% year over year in the three months to March, also below the median forecast for an unchanged 2.9% year over year reading. The unemployment rate remained unchanged, at 4.2%, which is a multi-decade low, in March, which met the median forecast.