Oil Price Fundamental Weekly Forecast – Cut in Saudi Exports, Drop in Rig Count Could Provide Early Support

U.S. West Texas Intermediate and international favorite Brent crude oil futures settled lower last week, but off their lows. The price action suggests investors may be trying to find a balance point in the market as they struggle with concerns about oversupply and lower demand and the possibility of reduced exports from the Middle East and dwindling spare capacity.

Last week, September WTI crude oil settled at $68.26, down $1.69 or -2.42% and September Brent crude oil finished at $73.07, down $2.26 or -3.00%.

Most of the selling last week can be attributed to the news that Libya had restarted output from a major oil field and speculation the Trump administration was considering drawing on the country’s oil reserve, according to a Bloomberg report.

Helping to limit losses at mid-week was a strong short-covering rally, fueled by a reaction to a U.S. government inventories report.

The Fundamentals

On Wednesday, the U.S. Energy Information Administration (EIA) reported that crude oil inventories increased 5.8 million barrels in the week-ending July 13, compared with analysts’ expectations for a decrease of 3.6 million barrels.

U.S. crude oil production last week hit 11 million barrels per day (bpd) for the first time in the nation’s history, the EIA said. Net U.S. crude imports rose last week to 2.2 million bpd to about 9 million bpd.

Gasoline stocks fell by 3.2 million barrels, compared to analysts’ expectations for a drop of 44,000 barrels. Distillate stockpiles, which include diesel and heating oil, fell by 371,000 barrels, versus expectations for an 873,000-barrel increase, the EIA data showed.

Wednesday’s rally was fueled by the bigger-than-expected drop in gasoline futures. However, gains were likely limited by the larger-than-expected build in crude inventories and more importantly, the jump in U.S. production to a record 11 million bpd.

In other news, U.S. energy companies last week cut oil rigs by the most since March. Drillers cut 5 oil rigs in the week to July 20, bringing the total count down to 858, General Electric’s Baker Hughes energy services firm said in its closely followed report on Friday.

Forecast

We could be looking at another week of two-sided trading unless there is unexpected news. However, based on the shift in momentum late last week and the drop in the rig count, we could see strength early in the week.

Crude oil could get a boost if the U.S. Dollar continues to tumble. A lower dollar tends to increase foreign demand for dollar-denominated crude oil. Lower expected August oil exports from Saudi Arabia could also support the market.

We don’t expect last week’s surge in gasoline demand in the United States to continue to provide support. President Trump is targeting high gasoline prices and is trying hard to get them lowered. Russia and Saudi Arabia are helping Trump’s cause by increasing their supply so it will be a challenge for bullish traders to overcome resistance on the basis of increased gasoline demand.

On the bearish side, lower oil demand in the United States and China caused by an economic slowdown from their trade dispute could weigh heavily on markets over the near-term. Any escalation in tensions this week could cause prices to suddenly tumble. This could be triggered this week by the announcement of additional tariffs on China by the Trump administration.