Oil Price Fundamental Daily Forecast – Traders Adjusting to Battle Between OPEC-Led Cuts, Soaring U.S. Production

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower shortly before the regular session opening after early session strength failed to attract enough buyers to extend the rally. Prices jumped after the report of a fire at a crude oil pumping station in Venezuela’s Orinoco belt region on Tuesday. Underpinning prices were the OPEC-led production cuts and the U.S. sanctions on Iran and Venezuela. Prices were capped by soaring U.S. production and concerns over the slowing global economy.

At 10:10 GMT, April WTI crude oil is trading $56.31, down $0.14 or -0.27% and April Brent crude oil is at $66.19, down $0.26 or -0.39%.

Fire at Ero Pumping Station

The fire at the Ero pumping station, which has the capacity to transport 300,000 barrels per day of crude, was controlled and no one was injured, the company said in a statement. But the incident will affect transport of crude through pipelines, a source at the company said, without providing further details.

In a statement, “PDVSA said the fire was caused by “an act of sabotage perpetrated by the right-wing opposition.”

The early rise in crude prices may have been driven by the news, however, since it didn’t amount to much damage to infrastructure or supply, the rally died. Since Venezuela is a hot spot, traders should continue to watch for similar news that affects supply.

OPEC-led Production Cuts

OPEC and its allies including Russia agreed last year to cut output by 1.2 million barrels per day (bpd). These cuts began on January 1 and have been successful so far in helping to reduce the global supply glut. In addition to this news, Saudi Arabia is expected to reduce shipments of light crude oil to Asia in March as part of the effort to tighten markets.

French bank BNP Paribas said in a note, “We have lowered Saudi crude oil output in line with announcements…(and) are now assuming that Saudi Arabia will produce in the first three quarters of 2019 less than the 10.31 million bpd target it agreed to at the December 7 OPEC, non-OPEC meeting.”

BNP also said it expected oil prices “to rally through Q3 2019”, with Brent to average $73 per barrel by then and WTI to average $66.00.

Soaring U.S. Crude Output

On Tuesday, the Energy Information Administration (EIA) said it expected U.S. crude oil production to keep rising.

BNP Paribas added, “U.S. oil production growth, driven by shale, will be increasingly exported in greater volumes to international markets while the global economy is expected to witness a synchronized slowdown in growth.”

Daily Forecast

Prices could continue to gyrate given the offsetting news about OPEC-led production cuts and soaring U.S. production. However, any positive developments over U.S.-China relations could provide the boost that crude oil needs to take out the recent top and continue the rally. If there is no news then prices could drift sideways.

Later in the session, investors will get the opportunity to react to the latest weekly inventories data from the American Petroleum Institute.