Oil Monthly Forecast – July 2018

With global trade wars coming into focus, the price action of Crude oil in recent times was heavily influenced by US Sanctions on Iran, Venezuela, and US pushing OPEC members to raise output. The first week of June 2018 saw the widest discount in Crude oil price at $11 as WTIUSD was trading at multi-year lows relative to Brent at $67 per barrel as USA increased its Crude Oil output as evident from weekly inventory data and U.S oil rig count.

Oil Picks Up

As the USA continued to enforce its sanctions against Iran and Venezuela, Brent Crude was trading near $79 per barrel with global demand seeing a spike in value. Asian market saw a good opportunity to boost its stockpile when discount in price continues to exist with Singapore and India choosing to replace costly Middle Eastern Crude with cheaper US Shale Oil as US Crude was relatively cheaper. To resolve this huge discount in Brent to WTI price action, ministers from Saudi Arabia, the United Arab Emirates, Kuwait and Algeria along with their counterpart from non-OPEC Oman met unofficially in Kuwait and agreed on the need for continued cooperation between members of the Organization of the Petroleum Exporting Countries and other big producers to balance global supply.

However, WTIUSD went as low as $64.92 on news that Iran’s crude oil and condensate exports hit 2.7 million bpd in May, despite the US withdrawal from Iran’s nuclear deal and re-imposition of sanctions.

The European Union has vowed to maintain the Iran nuclear deal despite the U.S. decision to exit, and Brussels has pushed back against Washington’s attempts to penalize European companies from doing business with Iran.  This along with news of a rise in U.S Oil drilling activity reaching highest levels since March 2015 caused WTI/USD price to move as low as $64.85. WTIUSD continued to trade with double-digit discount across the second week of June 2018. Both Saudi Arabia & Russia reported a spike in production over 100000 & 143000 barrels per day respectively ahead of OPEC summit but President Trump continued his tantrums to increase crude output while US Energy Information Administration reported that US oil production hit a weekly record of 10.9 million barrels per day. Investors continued to look out for OPEC summit scheduled in the third week of June 2018 for outcome over future Crude production agreement.

Sino-U.S trade wars hit news highs ahead of OPEC summit over comments from China in the third week of June. China which has bought an average 330,000 barrels per day (bpd) of U.S. crude oil this year, is threatening to place a 25 percent tariff on various U.S. commodity exports, including crude oil in response to U.S. President Donald Trump saying he was pushing ahead with hefty tariffs on $50 billion of Chinese imports. China has never feared US sanctions maintaining good trade relations with N.Korea despite the US being at logger’s heads with N.Korea. If Trump continues to remain hostile or push tariff China is expected to move to Iran for Oil Imports which would help the country feel less weight from US Sanctions while US Oil industry would lose over $1 billion per month on losing Chinese Crude Oil trade activity.  The discount between WTIUSD & Brent Crude hit single digits in the third week of June albeit the discount being around $8 or $9.

As OPEC summit began, the members focused mainly on raising Crude Oil output to meet with supply-demand created by US sanctions on Iran and Venezuela.  Saudi Arabia and Russia were leading the push to boost supplies while Iran, Iraq, and Venezuela were opposed to a significant increase.

Finally, OPEC and non-OPEC producers agreed on a modest increase in production without announcing a clear target for the output increase after Saudi Arabia persuaded Iran to cooperate, leaving traders guessing how much more will actually be pumped. Non-OPEC said in their statement that they would raise supply by returning to 100 percent compliance with previously agreed output cuts, after months of underproduction.

The third week concluded with positive proceedings in OPEC summit which initiated the narrowing of WTIUSD & Brent Crude price spread. However, this was because WTIUSD price began uptrend movement during the third week ahead of OPEC summit.  WTIUSD price saw continued upward growth across the fourth week of June resulting in narrowing of discount between Brent Crude and WTI as low as $7 per barrel. One of the main reasons for bullish price action in WTIUSD in the fourth week of June is US President Trump’s order to allied countries asking them to stop importing crude oil from Iran by November 4, warning the other countries that fail to do so would result in the imposition of sanctions on said allies. This caused WTIUSD to move back above $70 per barrel and when trading session closed on Friday the price per barrel in WTIUSD was at $74.39 narrowing the discount between Brent Crude to $4.84. Moving forward Crude Oil price is expected to maintain bullish stance in early July as current momentum is influenced by an uncertain OPEC decision to make sense of which, investors await post-summit monthly data from major producers of Crude oil and Trump continues to enforce allies to comply with his demands on Iran Crude imports.