Oil Price Fundamental Daily Forecast – U.S. Production Surge Loosening Global Supply

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading sideways-to-lower early Friday after as steep plunge the previous session sent prices to their lowest levels since the first week in April.

Both futures contracts came close to testing or taking out their 200-day moving averages, which would have wreaked havoc for traders since many of the hedge and commodity funds have protective stops parked under this bullish technical indicator.

At 02:15 GMT, June WTI crude oil futures are trading $61.79, down $0.02 or -0.02%. July Brent crude oil is at $70.57, down $0.18 or -0.25%.

Crude oil fell to a one-month low on Thursday as traders continue to react to rising U.S. crude stockpiles and their potential impact on the OPEC-led attempt to trim the global supply and stabilize prices. The intense selling pressure, which began last week, materialized despite escalating political turmoil in Venezuela and the expanded sanctions against Iran that are designed to drive the nation’s exports to zero.

To recap Wednesday’s U.S. Energy Information Administration’s weekly inventories report for the week-ending April 26, U.S. crude stockpiles surged 9.9 million barrels, while U.S. oil production ticked up to a record 12.3 million barrels per day. Furthermore, the report showed that U.S. stockpiles have risen in five of the last six weeks, dimming reports that the global supplies are getting tighter.

New Worries on the Horizon

On Thursday, reports circulated that Asian refineries are asking Saudi Arabia for more crude oil in the wake of the expansion of sanctions on Iran. If the Saudis are accommodative, then prices should tumble further.

There are also reports that refiners are expressing concerns over supply shortages caused by the U.S. sanctions against Venezuela and Iran.

Finally, in Europe, Poland said it will release strategic oil supplies. This is to provide some relief to refiners after the country suspended shipments from Russia after contaminated Russian crude was discovered in a major pipeline system.

Is Libya the Wildcard for Bulls?

With support eroding and prices nearly in a free-fall, it may take an escalation in the military dispute in Libya to provide some support especially if the turmoil causes supply disruptions.

Daily Forecast

According to reports, the latest round of U.S. sanctions will likely remove about 700,000 to 800,000 barrels per from the market (I’m really enjoying how this figure keeps changing). Saudi Arabia, Russia and other allies have been removing about 1.2 million bpd from the markets since January 1. This has helped fuel the 40% rally.

President Trump is counting on Saudi Arabia and its friends to fill in the supply gap in the coming months. If they are accommodating, then prices could plunge further.

Furthermore, OPEC and its allies meet at the end of next month to discuss whether to extend the six-month deal beyond June. Russia is saying it may leave the group and pursue more market share. This could collapse prices even further.