Oil Price Fundamental Daily Forecast – Pressured by Possibility OPEC Will Make Up Iranian Oil Shortfall

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Friday amid speculation that OPEC and its allies will soon raise production to offset a decline in exports from Iran following a move by the United States earlier in the week to halt all exports from the rogue nation.

At 07:52 GMT, June WTI crude oil futures are trading $64.94, down $0.27 or -0.43% and June Brent crude oil is at $74.30, down $0.05 or -0.07%.

OPEC and its allies including Russia have been tightening supply since January 1. This has been the primary driver of the more than four month rally. Supply tightened further when the U.S. imposed sanctions against Venezuela.

Earlier this week, the U.S. ended the waivers on exporting Iranian oil it had granted to eight major buyers. This spiked prices sharply higher to levels not seen in six months. At the time, analysts were saying that this would remove about 1 million barrels per day from crude oil from the market.

Since that initial spike to the upside, traders have had to deal with heightened volatility. However, the news has affected WTI and Brent differently.

WTI has been retreating since Wednesday’s U.S. Energy Information Administration’s weekly inventories report showed a bigger-than-expected build. Brent, on the other hand, had been rallying until Thursday. The move was fueled by the news that Germany, Poland and Slovakia had suspended imports of Russian oil via a major pipeline, citing poor quality. According to reports, the move cut parts of Europe off from a major supply route.

Since the initial thrust to the upside, prices have also been under pressure on speculation that OPEC make up the shortfall from the loss of the Iranian exports. Some analysts feel that the United States will pressure Saudi Arabia to end its voluntary supply restraint.

Additionally, earlier in the week, traders were pricing in a loss of about 1 million bpd of crude. Now traders are estimating the loss will be about 500,000 to 600,000 bpd. This is because China and India are expected to ignore the U.S. threat of sanctions for importing Iranian crude oil.

Daily Forecast

The oil market remains tight, but not as bullish as it was earlier in the week when traders were pricing in the loss of a million barrels per day. The sell-off represents traders making adjustments to the possibility that OPEC and its allies will make up the short-fall. Because Saudi Arabia has been cutting production more than expected, it has room to make up the loss.

Prices are likely to be under pressure until they reach a value zone or a level that represents the new expected shortfall of between 500,000 and 600,000 per day.

Essentially, buyers overshot to the upside when they thought 1 million bpd of crude oil would be removed from the market, now it looks as if the actual figure will be about half of that. This news, combined with the surge in U.S. production is making WTI the weaker of the two futures contracts.