Oil Price Fundamental Daily Forecast – Jump in U.S. Production Offsets Drop in Crude Inventories

U.S. West Texas Intermediate and international-benchmark Brent crude oil are trading nearly flat early Friday after losing ground on Thursday in reaction to a new all-time high in U.S. production and continued worries over expectations of higher OPEC output.

On Thursday, July WTI crude oil settled at $67.01, down $1.20 or -1.79% and August Brent crude oil finished the session at $77.56, down $0.16 or -0.21%.

According to the U.S. Energy information Administration in its monthly report, U.S. crude oil production jumped 215,000 barrels per day (bpd) to 10.47 million bpd in March, the highest on record.

Production in Texas rose by 4 percent to almost 4.2 billion bpd, a record high based on the data going back to 2005. Output from North Dakota held around 1.2 million bpd, while output in the federal Gulf of Mexico declined 1.1 percent to 1.7 million bpd.

The EIA also revised February oil production down by 5,000 bpd to 10.26 million bpd.

In other crude oil news, oil imports from Venezuela dropped more than 3 million bpd to 13.21 million bpd in the month, approaching the all-time low 13.20 million bpd, reported in January of 2003.

Gasoline demand in March was 9.4 million bpd, up 1 percent, or 94,000 bpd from a year earlier, according to the report. At the same time, gasoline exports rose to 951,000 bpd, up 361,000 bpd from a year earlier.

Distillate fuel exports were 1.15 million bpd in the month, down about 12,000 bpd from a year earlier. Demand for distillate fuels, including diesel and heating oil was 4.2 million bpd, up 0.4 percent, or 15,000 bpd, from a year earlier.

In other news, U.S. crude stockpiles fell 3.6 million barrels in the week-ending May 25, the EIA said, exceeding expectations for a decline of 525,000 barrels.

Forecast

Prices are holding steady early Friday because the drop in inventories in the U.S. was overshadowed by the jump in production to a record high level. Besides, at this time, traders are more concerned about supply-side issues in OPEC. These worries have driven the Brent-WTI spread out to nearly $11 barrels, the highest level in three years.

Helping to limit gains is the news that OPEC and other major non-OPEC producers, including Russia, may be planning to increase production by as much as 1 million barrels per day. Currently, OPEC and its allies are committed to slashing production by 1.8 million bpd until the end of 2018.

Also providing support this week is a report that Russia’s central bank expressed concerns about raising output.

Finally, there’s a bottleneck in the U.S. supply chain that is contributing to the decline in U.S. futures as well. According to reports, prices for physical barrels of U.S. light sweet crude delivered at Midland are at their largest discount to the benchmark U.S. futures price in almost four years.

Prices could remain rangebound today as investors continue to adjust to the new price levels and as they continue to assess the current supply/demand situation. Barring any major announcements over the near-term, crude is likely to drift sideways-to-lower until the OPEC meeting on June 22.