Oil Price Fundamental Daily Forecast – U.S. Production More than Offsetting OPEC-led Supply Cuts

U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading higher on Thursday after posting a steep sell-off the previous session. The price action suggests calm has returned to the markets after a little bit of a panic sell on Wednesday in reaction to an unexpected build in U.S. stockpiles. Optimism over U.S. trade relations with Mexico are also providing some support.

At 10:42 GMT, July West Texas Intermediate crude oil futures are trading $51.81, up $0.12 or +0.23% and August Brent crude oil is at $61.12, up $0.49 or +0.81%.

Brent is outperforming WTI on Thursday because the supply issues are being generated by rising U.S. inventories and production. Brent supply is being controlled by the OPEC-led supply cuts and the U.S. sanctions against Iran and Venezuela.

Despite today’s “technical bounce”, gains are likely to be limited due to concerns that a weakening global economy will lead to lower energy demand.

U.S. Energy Information Administration Weekly Inventories Report (EIA)

Crude oil prices plunged on Wednesday after the EIA reported a weekly build in crude oil inventories of 6.8 million barrels. Traders were looking for a 1.7 million barrel draw down. The EIA also said that total stockpiles are now at 483.3 million barrels, 5 percent above the seasonal average.

The EIA report also showed gasoline stockpiles rose 3.2 million barrels during the week-ending May 31. This compares with a decline of 600,000 barrels a week earlier. Gasoline production averaged 10 million bpd last week, compared with 10.1 million bpd a week before.

Distillate fuels also rose. The EIA reported an inventory build of 4.6 million barrels, compared with a small draw of 200,000 barrels a week earlier. Refineries produced 5.4 million bpd of distillates during the week-ending May 31, up from 5.1 million bpd a week earlier.

Daily Forecast

Prices for WTI and Brent are likely to bounce around key technical levels at $52.70 and $60.32, respectively, until traders can figure out the rapidly deteriorating supply and demand pictures.

Basically, rising U.S. production is more than offsetting the strategy from OPEC and its allies, and if we consider the potential negative impact of the trade war on future demand, prices are likely to continue lower until supply and demand reach a balance point.

Prices are relatively cheap, but downside momentum is very strong. Weakness is likely to prevail unless the U.S. and China announce that trade talks are back on.