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Oil Price Fundamental Daily Forecast – Mixed Trade Ahead of June Contract Expiration

Global demand will recover only slowly as some restrictions remain in place and there is a significant risk of repeat outbreaks and lockdowns.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed on Tuesday as buyers take a breather after Monday’s rally drove the markets to their highest levels since early March and April respectively.

Brent futures are pulling back on profit-taking according to traders, but U.S. crude oil is trying to extend its gains amid signs that producers are cutting output as promised just as demand picks up on a resumption of economic activity.

At 10:41 GMT, July WTI crude oil futures are trading $31.69, up $0.04 or +0.13% and July Brent crude oil is at $34.75, down $0.06 or -0.17%.

With the June WTI crude oil futures contract set to expire on Tuesday, I would not be surprised by a short-term pullback, but there is very little chance, in my opinion, of a repeat of the historic plunge below zero seen a month ago on the eve of the May contract’s expiry amid signs that demand for crude and derived fuels is recovering after reaching a bottom last month.

Production Falling

U.S. production is falling along with the cut in OPEC+ crude oil exports, with crude output from seven major shale formations expected to fall to 7.822 million barrels per day in June, the lowest since August 2018, according to the U.S. Energy Information Administration.

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Demand Expected to Pick Up Slowly

Domestic and global demand will recover only slowly as some restrictions remain in place and there is a significant risk of repeat outbreaks and lockdowns, Eurasia Group said in a report issued on Monday.

The Eurasia Group urged caution on oil consumption, citing “a global recession, cautious consumers, and a later and potentially worse peak of the coronavirus outbreak in emerging markets such as Latin America, Africa, and South Asia.

Daily Forecast

As we saw on Monday, crude oil traders are paying attention to outside factors like a vaccine for coronavirus, and not only the traditional supply/demand figures.

The price action could be choppy on Tuesday with the expiration of the June futures contract. Furthermore, we may see traders move money out of the July contract and into the August contract.

At 20:30 GMT, traders will get the opportunity to react to the latest weekly supply report from the American Petroleum Institute (API). It is expected to a small draw, but the number has been known to be volatile.

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