Oil Price Fundamental Daily Forecast – Steady Amid U.S. Production Rise, Strong Demand

The problem at this time is the major crude oil traders are reluctant to make a large commitment to the long side ahead of the OPEC meeting. So instead, we are seeing mostly short-covering activity that is helping to give the illusion of a bottom and increasing long positions.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed early Thursday amid increasing worries over rising U.S. production. Although strong demand and a government report showing a bigger-than-expected draw down in supply is providing some support.

At 0838 GMT, August WTI crude oil is trading $66.61, up $0.09 or +0.14% and August Brent crude oil is at $76.80, up $0.06 or +0.08%.

Crude oil closed higher on Wednesday, reversing earlier losses, after U.S. government data showed a bigger weekly draw than expected in domestic crude inventories.

According to the U.S. Energy Information Administration, crude inventories fell by 4.1 million barrels in the week-ending June 8. Traders were expecting a decrease of 2.7 million barrels. Total crude oil supply is now at 432.4 million barrels.

Gasoline inventories dropped 2.3 million barrels, with the average daily production at 10.5 million barrels, versus a huge 4.6 million barrel build and daily production of 9.7 million barrels a week-earlier.

Distillate inventories last week were down by 2.1 million barrels, which compares with a build of 2.2 million barrels in the prior week. Distillate production in the week to June 8 averaged 5.1 million barrels daily, versus 5.3 million bpd in the previous two weeks.

U.S. oil production hit another weekly record last week at 10.9 million barrels per day.

Forecast

We’re still looking at a rangebound trade ahead of the June 22 OPEC meeting in Vienna although yesterday’s demand numbers and inventories reports are giving the market a slight upside bias.

The problem at this time is the major crude oil traders are reluctant to make a large commitment to the long side ahead of the OPEC meeting. So instead, we are seeing mostly short-covering activity that is helping to give the illusion of a bottom and increasing long positions.

Despite reports of strong gasoline demand, the market is still facing increasing headwinds. The latest updates indicate that Russia may offer its OPEC partners a return to production rates from October 2016, which most participants in the OPEC-led deal to reduce production took as a basis for the cuts in output. Russia itself agreed to cut 300,000 bpd from its October production average, which was a record 11.2 million bpd.

Additional headwinds were provided by a report from Reuters that showed crude oil in floating storage in Europe had hit an 18-month high, at 12.9 million barrels, or over a quarter of global floating storage.

Now that OPEC and its partners had achieved its main objective of rebalancing the oil market, they are likely to begin increasing production to meet the strong demand.

The trick at this time is to hold the supply/demand situation in balance until the June 22 meeting then try to put a more stable plan into place.

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