Oil Price Fundamental Daily Forecast – Down on Supply Concerns; API Report Offers No Relief

U.S. West Texas Intermediate and internationally-favored crude oil fell to a nine-month closing low on Tuesday, sinking more than 2 percent in the process. Traders were once again reacting to new signs of rising production in key areas of the world.

On Tuesday, August WTI crude oil settled at $43.36, down $1.07 or -2.41%. September Brent crude oil ended the session at $46.05, down $1.08 or -2.29%.

Early Wednesday, WTI crude is trading $43.47, down $0.04 or -0.09% and Brent crude oil is trading $46.15, down $0.10 or -0.22%.

Crude oil prices plunged through last week’s low on new signs of rising output from Nigeria and Libya, the two OPEC members exempt form a deal to cut production.

According to new data, output from the 14-member exporter group ticked higher in May due to rising production in Nigeria, Libya and Iraq, raising concerns about OPEC’s effort to reduce output, trim the global supply glut and stabilize prices.

A Libyan source told Reuters that Libya’s oil production rose more than 50,000 barrels per day to 885,000 bpd. Additionally, exports of Nigeria’s benchmark Bonny Light crude oil are set to rise by 62,000 barrels per day in August.

Forecast

The current downside momentum in the market strongly suggests that crude oil is headed to $40 a barrel and will likely test the upper $30s. The bad news just keeps piling up. Word is that tanker-tracking data is showing unsold crude oil cargoes from Nigeria. Additionally, U.S. producers are locked in for future delivery. This means they are going to have to keep pumping oil in order to fulfill those obligations even if prices drop below $40.

Changes May Be Coming….

The drop in crude prices may force OPEC to take additional action if they want to achieve their stated goal of driving global crude stockpiles down to the five-year average. Some traders are also saying that the price drop could lead to an eventual drop in production. Weekly increases in U.S. output have been increasing at a slower pace in the last couple of months than in the prior two months. If there are going to be any major changes in U.S. policy, they are probably going to show up in the weekly oil rig count first.

In other news, last Tuesday, the American Petroleum Institute (API) reported a draw of 2.72 million barrels in U.S. crude oil inventories. Analysts were looking for a 2.0 million draw for the week-ending June 16. This week’s build, according to the API, brings the total inventory build in 2017 to 14.11 million barrels.

The friendly crude oil news was offset by a rise in gasoline inventories of 346,000. However, this figure was a little better than the expected 400,000-barrel build. The gasoline numbers mean that demand for fuel is still weak despite the onset of the U.S. summer driving season.