Oil Price Fundamental Daily Forecast – OPEC-led Coalition Discussed Raising Production 1 Million BPD

Sellers continue to pound crude oil futures early Monday in a continuation of Friday’s steep sell-off. The catalyst behind the selling pressure are reports that Saudi Arabia and Russia may increase production as early as June. Traders are also reacting to another jump in the U.S. rig count, which suggests U.S. production will continue to increase.

At 0713 GMT, July WTI Crude Oil futures are trading $66.80, down $1.08 or -1.59%. International-benchmark July Brent Crude Oil is at $75.57, down $0.87 or -1.14%.

Both futures contracts are down substantially from their multi-year peaks hit earlier in the month. WTI futures are also in a position to close lower for the month. This technical trading signal indicates that a major top may be taking place.

Since early 2017, an OPEC-led group of producers has been trimming supply in the hopes of stabilizing prices and reducing the supply glut. Their strategy has proved to be successful, but a recent surge in prices tied to renewed sanctions against Iran is raising concerns over economic growth and runaway inflation. This is prompting Saudi Arabia, Russia and other major producers to seriously consider gradually boosting production in an effort to stop the price rise from getting out of control.

According to reports, Saudi Arabia, the de-facto leader of OPEC and other major non-OPEC producers are discussing raising oil production by some 1 million barrels per day (bpd).

The apparent agreement between the Saudis and the Russians calls for increased oil production during the second half of the year. The move is expected to make up for any shortfall that may be caused by fresh sanctions against Iran.

Bearish traders are also reacting to concerns over surging U.S. production. On Friday, oil services firm Baker Hughes announced that U.S. energy companies added 15 rigs looking for new oil in the week ended May 25, bringing the rig-count to 859, the highest level since 2015. This is a strong indication that U.S. crude production will continue to rise.

The hedge funds have been taking profits and cutting long positions for weeks but the latest report from the U.S. Commodity Futures Trading Commission shows that hedge funds and other money managers raised their bullish bets on U.S. crude oil and options in the latest week after four consecutive cuts in their net long positions.

The increase lifted the wagers from 6-month lows, in the week to May 22, according to the CFTC, but this news is nearly a week old. Based on the price action on Friday and early Monday, these buyers have probably been blown out of the market and may have even reversed to the short side.

The daily chart indicates the market may break into $64.77 before value seekers and bottom-pickers decide to step in to stop the price slide.