Oil Price Fundamental Daily Forecast – Hedge Funds, Money Managers Cut Bullish Wagers

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower early Monday. There are no new catalysts behind the price action, traders are still pressing the short side because of concerns over record U.S. production and worries over a jump in OPEC supplies.

At 0513 GMT, July WTI crude oil is trading $65.71, down $0.10 or -0.15% and August Brent crude oil is at $76.47, down $0.32 or -0.42%.

Summary

With the key OPEC meeting coming up on June 22, oil traders are going to continue to monitor the discussion between OPEC members about whether they should adjust production levels higher in the wake of a drop in supply from Venezuela and potential sanctions against Iran later this year.

At the same time, traders are monitoring U.S. data for any more signs of increased production. It was reported last week that U.S. production rose to a record level in March, while drilling activity picked up again last week.

Weekly Facts

• Russia’s largest oil producer Rosneft says it will be able to restore 70,000 barrels per day (bpd) of oil output in just two days if global production limits are lifted.
• Last week, the Energy Information Administration said that U.S. crude production rose in March to 10.47 million barrels per day (bpd), a monthly record.
• According to General Electric’s Baker Hughes energy services firm, U.S. drillers added two oil rigs in the week to June 1, bringing the total to 861, the most since March 2015. It was the eighth increase in nine weeks.
• Hedge funds and other money managers cut their bullish wagers on U.S. crude futures and options during the week to May 20.

Forecast

With the OPEC decision essentially on hold until June 22, I think the focus will be U.S. supply and demand issues as summer driving activity begins to pick-up. With gasoline demand expected to increase, we could see a fall in U.S. crude oil inventories, however, shale oil output is going to continue to grow. The direction of the market over the short-term will essentially be determined by which side can overtake the other.

As far as the OPEC discussions are concerned, traders seem to be comfortable with a possible 1 million barrel per day increase if it is gradual. This could hold prices relatively steady. Prices will drop sharply again if the amount of the increase rises above 1 million barrels, and/or the increases are at a more aggressive pace. Of course, a cut in the number will trigger a short-covering rally.