Oil Price Fundamental Daily Forecast – Production News, Inventories Reports Will Set the Tone This Week

Based on the early price action, it looks as if rising production will be the market driving news this week. The crude oil market is fragile and looks vulnerable to the downside.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil plunged more than 2 percent on Monday, pressured by a rise in Russian production, expectations that Saudi Arabia will cut prices of the crude it sends to Asia and a deepening trade dispute between the United States and China.

May WTI crude oil settled at $63.01, down $1.93 or -2.97%. June Brent crude oil finished the session at $67.64, down $1.70 or -2.45%.

Daily May WTI Crude Oil

Early in the session, prices rose, supported by a weekly report that showed a drop in U.S. drilling activity. Energy services firm Banker Hughes said drillers cut seven oil rigs in the week to March 29. It was the first time in three weeks the rig count had fallen.

Prices were also supported by reports that the U.S. is considering reimposing sanctions on Iran. This would likely cause supply disruptions in the region.

Sellers started to hit the market shortly after the regular session opening. The catalyst behind the pressure were reports of a rise in Russian oil output and Saudi Arabia’s plan to cut prices to Asia. The market further accelerated to the downside when U.S. stock markets sold-off sharply.

According to the Russian Energy Ministry, Russian oil output rose in March despite the deal to cut production, to 10.97 million barrels per day from 10.95 bpd in February.

There was another report that the Saudi’s plan to cut prices for all crude grades it sells in Asia in May to reflect weaker prices for its Middle East benchmark Dubai crude.

Daily June Brent Crude

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Forecast

Crude oil is trading higher early in the session on Tuesday. There was no follow-through to the downside as global stock indexes stabilized after Monday’s steep sell-off in the U.S.

At 0709 GMT, May WTI crude oil is trading $63.22, up $0.21 or +0.33% and June Brent is at $67.91, up $0.27 or +0.40%.

The rise in Russian output and the Saudi Arabian price cuts to Asia came as a big surprise to traders. That news could set a bearish tone for the week. Prices are likely to continue to fall on Tuesday if the weekly American Petroleum Institute’s (API) inventories report is bearish. Prices could drop further if Wednesday’s U.S. Energy Information Administration’s weekly inventories report is also bearish.

Based on the early price action, it looks as if rising production will be the market driving news this week. Any further sell-off in the equity markets will be the icing on the cake for bearish short-sellers.

Prices could stabilize if the U.S. announces further action against Iran but this shouldn’t be enough to erase the bearish sentiment. The crude oil market is fragile and looks vulnerable to the downside.

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