Oil Price Fundamental Daily Forecast – Storage Capacity Worries, Demand Destruction Limiting Gains

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower on Tuesday as investors appear to be downplaying a report from the main U.S. energy forecasting agency that predicted shale output in the world’s biggest crude producer would fall by the most on record in April. The news is potentially bullish because it, combined with additional cuts from other major producers, will help reduce the oversupply.

At 09:12 GMT, June WTI crude oil is trading $29.11, down $0.15 or -0.51%. June Brent crude oil is at $31.27, down $0.49 or -1.54%.

U.S. Energy Information Administration See Big Production Plunge

U.S. shale oil output is expected to have the biggest monthly drop on record during April, the EIA said on Monday. Production has been sliding for several months, but the declines are expected to accelerate sharply in April with a loss of nearly 200,000 bpd of production, the EIA said.

That would bring shale oil output, which has been the driver of the sharp growth in U.S. production, to 8.7 million bpd, according to Reuters.

Numerous U.S. producers, including majors like Exxon Mobil and Chevron, have said they will cut spending and expect to produce less crude in the coming months, Reuters reported.

OPEC and Others Plan to Reduce Production

OPEC, along with Russia and other producing countries – known as OPEC+ – agreed over Easter to cut output by 9.7 million barrels per day (bpd) in May and June, equal to about 10% of global supply before the viral outbreak.

The United States, the world’s biggest producer, is reducing output as well, and other countries are taking the estimated cut in production to about 19.5 million bpd. The other countries include Brazil, Norway and Canada.

Daily Forecast

Crude oil traders are probably struggling with the potentially bullish supply news due to the size of the demand destruction caused by the impact of the coronavirus pandemic. And with traders not sure when the lockdowns sweeping the world are going to end, the uncertainty over when demand will start to stabilize is still unknown.

Another problem keeping a lid on prices has to do with storage capacity. Inventories, where available, are expected to fill up fast even as some countries among the G20 agreed to buy oil for their national reserves.

Meanwhile, Goldman Sachs doubted whether the cuts being discussed would be enough to offset slumping consumption, estimating that the coronavirus would slash demand by 19 million bpd in April-May.

Analysts also said the cuts are likely too little and too late to prevent a decline in prices in coming weeks as storage capacity becomes saturated.