Oil Price Fundamental Daily Forecast – Could Face Headwinds Ahead of Expected OPEC+ Production Hike

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Wednesday despite a report saying OPEC+ will increase production. Furthermore, bullish traders don’t seem to be rattled by the threat of new oil from Iran hitting the open market and a resurgence in COVID-19 cases.

At 12:56 GMT, September WTI crude oil futures are trading $73.20, up $0.89 or +1.23% and September Brent crude oil futures are at $75.14, up $0.86 or +1.16%.

In other news, the crude oil market is also being supported by Tuesday’s American Petroleum Institute (API) weekly inventories report that showed U.S. crude stockpiles fell last week.

API said crude stocks in the United States were down by 8.2 million barrels. Gasoline inventories rose by 2.4 million barrels and distillate stocks were up by 428,000 barrels.

At 14:30 GMT, the Energy Information Administration (EIA) weekly inventories report is expected to show a 4.2 million barrel crude oil drawdown.

OPEC Will Increase Output to Keep Oil Prices Affordable

OPEC will increase production to keep oil prices at a level customers can afford, Nigeria’s NNPC chief and national representative to OPEC Mele Kyari said on Wednesday, according to Reuters.

“The only way to pull down the price is to increase the production, for you to increase the supply,” Kyari said during an interview on local news channel Arise TV. “And that is what is going to happen. OPEC is going to intervene.”

OPEC+ is currently returning 2.1 million barrels per day (bpd) to the market from May through July as part of a plan to gradually unwind last year’s record oil output curbs. The group is meeting on Thursday, and sources have told Reuters it is discussing a further easing of output cuts, but had not yet decided on the exact volume to bring back.

Oil to Sustain Surprise Rally Despite Iran, Third COVID-19 Wave Threat

According to Reuters, 44 analysts polled this month forecast benchmark Brent prices to average about $67.48 a barrel this year, up from the $64.79 consensus in May.

Additionally, oil demand was seen growing by 5-7 million barrels per day (bpd) this year.

“The upward range of oil will be limited by the ability of OPEC to bring back supply to address unexpected upward movements in demand and prices,” John Paisie, Stratas Advisors president, told Reuters.

Paisie predicts Brent will average around $75 a barrel in the third quarter and $78.50 in 2022, adding:  “One reason that we think that increase in oil prices will be more moderate is the strength of the U.S. Dollar.”

Goldman Sachs was more bullish, seeing Brent averaging $80 a barrel in the third quarter “with potential spikes well above”, with the global market facing “its deepest deficits since last summer.”

Daily Forecast

Today’s rally is counter-intuitive with OPEC+ expected to raise output at its July 1 meeting. Bullish traders are also shrugging off a spike in COVID-19 cases, which could undermine demand recovery.

Today’s EIA report is expected to show another drawdown so a miss to the upside could generate some profit-taking. A larger-than-expected build in gasoline stocks could also encourage bullish traders to trim long positions.

We’re not expecting to see a major change in trend, but a short-term correction could help alleviate some of the upside pressure. As long as OPEC+ is controlling the supply, the market is expected to remain underpinned.