Oil Price Fundamental Daily Forecast – Rangebound: Underpinned by Saudi Pledge to Cut Exports, Lack of Deeper Cuts Caps Prices

U.S. West Texas Intermediate and international-benchmark crude oil futures rose on Monday after OPEC’s biggest producer, Saudi Arabia, pledged to cut exports in August to help reduce the global crude glut. According to a report, Saudi Energy Minister Khalid al-Falih said his country would limit crude oil exports at 6.6 million barrels per day (bpd) in August, almost 1 million bpd below levels a year ago.

September WTI crude oil settled at $46.34, up $0.57 or +1.25% and October Brent crude oil closed the session at $48.82, up $0.51 or +1.06%.

In addition to the Saudi pledge, the Russian Energy Minister Alexander Novak told reporters that an additional 200,000 barrels per day of oil could be removed from the market if compliance with a global deal to cut output was 100 percent.

The Saudi’s Falih also added that OPEC and non-OPEC partners were committed to cut output longer if necessary but would demand that any non-compliant nations stick to the agreement.

Perhaps a disappoint to traders and a reason why gains could be limited, there was no discussion of deeper output cuts, and OPEC Secretary-General Mohammad Barkindo said Nigeria has no intention of going beyond its production target of 1.8 million barrels per day.

Forecast

The price action suggests that for the most part, investors were pleased with the outcome of the OPEC/non-OPEC meeting in St. Petersburg, Russia on Monday. However, the failure to discuss deeper output cuts may limit gains. Furthermore, the news that Saudi Arabia would cut exports was baked into the market last week.

This means the market is likely to be rangebound ahead of Tuesday’s American Petroleum Institute’s weekly inventories report and Wednesday’s U.S. Energy Information Administration weekly inventories report.

September WTI’s range is $47.33 to $45.79. October Brent crude is being held together by $48.39 and $50.10.

Looking ahead, the EIA report is expected to show a 3.3 million barrel draw down.

In order to turn bullish this week and sustain the rally, crude is going to have to overcome the top of their ranges. Fundamentally, U.S. supply has to continue to decline and the rig count will have to show another decline.