Oil Price Fundamental Daily Forecast – OPEC Says Global Supply Glut Virtually Eliminated

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures rose on Monday after a new report showed the tightening market has all but eliminated a global supply overhang which depressed crude prices between late 2014 and early 2017.

July WTI crude oil settled at $70.99, up $0.31 or +0.44% and July Brent crude oil finished at $78.23, up $1.11 or +1.42%.

According to a report from OPEC, the global oil glut has been virtually eliminated. At the same time, the U.S. crude oil’s discount to global benchmark Brent widened to more than $7, its deepest in five months.

The OPEC report, published Monday, showed Venezuelan production at its lowest in decades and said the global oil glut had been virtually eliminated. Even so, OPEC and other producing countries were still trimming output more than their supply-cutting pact required.

Also supportive to prices was the possibility of hard U.S. sanctions against Iran’s oil industry. According to forecasts, U.S. sanctions will remove 400,000 to 500,000 barrels per day of Iranian crude from the global market. However, it’s unclear how hard the impact will be since it depends on how other major oil consumers respond to Washington’s action against Tehran, which will take effect in November.

Additionally, data from market intelligence firm Genscape showed that inventories at Cushing, Oklahoma, the delivery point for U.S. crude futures, fell more than 400,000 barrels in the week to May 11, according to traders who saw the data.

Forecast

The prospect of a drawdown in crude stocks should be supportive for prices along with the tight global supply situation. This may be revealed in Tuesday’s American Petroleum Institute’s weekly inventories report and Wednesday’s report from the U.S. Energy Information Administration.

However, gains could be limited because it is unclear whether China, France, Russia, Britain, Germany and Iran will remain in the agreement that placed controls on Tehran’s nuclear program in exchange for an easing of sanctions.

Even if the majority of the countries go along with the sanctions and supply is disrupted, there is talk that China, Russia, Saudi Arabia, Kuwait or Iraq stand ready to increase production to meet the expected shortfall.

Furthermore, there is also the threat that the U.S. will start to activate the 7,700 drilled but uncompleted wells in the lower 48 states. Essentially, there is the Oil Price Fundamental Daily Forecast – OPEC Says Global Supply Glut Virtually Eliminatedthreat of increased U.S. production. This is why the sanctions against Iran is going to impact Brent much more than it is going to impact WTI crude oil.