Crude Price Forecast – WTI Rallies Despite Production Increase from Russia

Crude prices finished near the highs of the session reversing negative momentum that started the session. Record high U.S. production off 10.8 million barrels per day has weighed on prices, along with talk that Saudi and Russia will increase production to make up for Venezuela’s plummeting production, and prospects for Iran sanctions, which would limit its exports. Russia actually has increased production ahead of the June meeting, and Saudi Arabia was reportedly asked by the U.S. to increase production, in order to put downward pressure on U.S. gasoline prices.

Technical

 

Crude oil rallied into the close of the trading session pushing up above resistance near the 10-day moving average at 66.07.  Support is seen near an upward sloping trend line that comes in near 64.50. Negative momentum is decelerating as the MACD (moving average convergence divergence) index prints in the red with an increasing trajectory which reflects consolidation.  The fast stochastic generated a crossover buy signal moving out of oversold territory which reflects positive momentum.

Russia Increased Production

Russia pumped 11.09 million barrels of oil daily in the first week of June. 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.

Data from the Energy Ministry shows that Russia has been exceeding its quota for three months in a row as of end-May, at 10.97 million bpd. In the beginning of June, the most marked increase came from Rosneft. The country’s top oil producer said earlier this month it had upped production by 70,000 barrels per day over just two days and could quickly ramp up by 100,000 bpd. Rosneft has a spare production capacity of 120,000-150,000 barrels per day. Gazprom Neft also said recently that it is ready to start ramping up, recovering production to pre-deal levels within a month or two by adding 5,000 barrels per day.

The Fed Could Generate a Stronger Dollar

A stronger dollar could cap oil prices. The FOMC is one among several key events ahead that could rattle the markets, alongside ongoing trade uncertainties. With a 25 bp tightening baked in, the focus will be on the Fed’s forward guidance, including the dots, as well as any tweaks to the IOER. The Fed will likely maintain the median dot projection of three rate hikes this year, though there’s speculation of a bump up to four. The 2019 outlook to be left unchanged at three tightening as well, underscoring the gradualist mantra.

FOMC Forecast revisions to be released Wednesday

FOMC Forecast revisions to be released Wednesday after the FOMC meeting should reveal increases in the 2018-19 GDP estimates, alongside small upward tweaks in the low-end 2018 PCE chain price estimates, with possible small bumps for 2019, and modest trimmings in the high-end jobless rate estimates across the forecast horizon. For GDP, the Fed’s March estimates incorporated the CBO scoring of the final tax law, though strong economic reports since then and upward revisions in market estimates should feed greater optimism at the Fed as well. GDP growth should be boosted of 0.1%-0.2% through 2018-19, but unchanged estimates for 2020. We also expect 0.1% boosts in the Fed’s low-end 2018 headline and core PCE chain price estimates, with possible lifts in low-end 2019 figures, though many expect 2020 projections to remain the same. The high-end jobless rate estimates could be reduced by 0.1% across the board, given a stronger growth path for payrolls.