Oil Price Fundamental Daily Forecast – Prices Could Plunge if Rig Count Increases

U.S. West Texas Intermediate and international benchmark crude oil futures are trading more than one-percent lower early Friday as investors react to a rise in U.S. production and reports from earlier in the week of a jump in OPEC production.

At 0553 GMT, August WTI crude oil is trading $44.93, down $0.59 or -1.30% and September Brent crude oil is trading $47.53, down $0.58 or -1.21%.

According to the U.S. Energy Information Administration, U.S. crude inventories fell by 6.3 million barrels in the week ended June 30. Traders were looking for a draw of about 2.4 million barrels. Total inventories stand at 502.9 million barrels.

Gasoline stocks also fell by 3.7 million barrels, to 237.3 million barrels.

This week’s report suggests increased demand for gasoline, but this news was offset by a 1 percent rise in weekly U.S. oil production to 9.34 million barrels per day (bpd).

Earlier in the week, it was reported that OPEC exported 25.92 million barrels per day (bpd) in June. This is 450,000 bpd more than in May and 1.9 million bpd more than a year earlier.

In other news, Saudi Arabia announced price cuts to Asia beginning in August. Russia said it was not interested in cutting production further.

Forecast

Crude oil is under pressure today because of the increased U.S. production. Last week, the EIA reported a drop in U.S. production, triggering an extension of the short-covering rally. Most bearish traders knew that this number did not represent a trend and was most likely caused by tropical storms and maintenance. Yesterday’s number suggests that U.S. production is back on track to increase further.

The key report today is the rig count. Last week, it showed a decline of 2 rigs after increasing for 23 weeks. The market will react to this report because another decline will be a sign that a trend is developing.

The news of another drop in the rig count may not trigger a short-covering rally but it should stop the selling. If the rig count increases by more than 2 then crude oil could get pounded into the close.