Oil Price Fundamental Daily Forecast – Saudi Aramco to Raise Production; EIA Report on Tap

U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading lower on Wednesday after reversing earlier gains. Prices fell after Saudi Aramco said it had been directed by the energy ministry to raise its production capacity by a million barrels per day. This is bearish news because it adds to concerns over a future supply glut due to overproduction and a steep drop in demand due to the coronavirus outbreak.

At 11:51 GMT, May WTI crude oil is trading $33.58, down $1.15 or -3.28% and June Brent crude oil is at $37.01, down $1.08 or -2.84%.

Saudi Aramco Ordered to Raise Output

Saudi Aramco Chief Executive Amin Nasser said the state-run oil giant had been asked by the Ministry of Energy to boost its production capacity to 13 million barrels per day (bpd) from 12 million bpd now.

CNBC added that Saudi Aramco has been pumping around 9.7 million bpd in the past few months, but has extra capacity it can turn on and has hundreds of millions of barrels of crude in storage.

“Saudi’s shock and awe strategy suggests to us that to bring Russia back to the negotiating table, it is serious in causing severe price and revenue pain for all oil producers,” UBS analysts said in a note.

They also said, “Higher oil inventories will likely weigh on prices over the coming months.”

Russians Pin Blame for Deal Break on Saudi Arabia

Russian Energy Minister Alexander Novak said Saudi Arabia’s plans to increase production capacity were ‘probably not the best option”, adding Moscow had several phone calls with OPEC and non-OPEC members but that no partners had agreed to its proposal.

American Petroleum Institute Weekly Inventories Report

The API reported late Tuesday that U.S. crude supplies climbed by 6.4 million barrels for the week-ended March 6. The API report also showed gasoline stockpiles declined by 3.1 million barrels, while distillate inventories declined by 4.7 million barrels.

Daily Forecast

Inventory data from the Energy Information Administration (EIA) will be released later today at 14:30 GMT.

The EIA data are expected to show crude inventories rose by 2.5 million barrels last week, according to analysts. Traders are also anticipating 2.7 million barrel drawdowns in gasoline and distillate inventories.

Today’s bearish news about increased Saudi Aramco production is offsetting optimism over government stimulus to combat the coronavirus outbreak. Furthermore, the news takes some of the shine off expectations of spending and production cuts by U.S. producers.