Oil Price Fundamental Weekly Forecast – Traders Pricing in 1 Millon Bpd OPEC Production IncreaseHeading into next week’s meeting, attendees are going to have to address rising U.S. output and uncertainty over the outlook for supply. However, given Friday’s steep sell-off, it looks as if investors are leaning heavily towards an increase in production from oil heavyweights Saudi Arabia and Russian.
August West Texas Intermediate and international-benchmark Brent crude oil futures settled lower last week with the Brent contract feeling the brunt of the selling pressure. The weakness was fueled by aggressive position-squaring ahead of next week’s OPEC meeting in Vienna on June 22-23.
To recap the week, after wallowing slightly above its near-term low earlier in the week, crude oil moved higher after U.S. government data showed a bigger weekly draw than expected in domestic crude inventories.
According to the U.S. Energy Information Administration, crude inventories fell by 4.1 million barrels in the week-ending June 8. Traders were expecting a decrease of 2.7 million barrels. Total crude oil supply is now at 432.4 million barrels.
Gasoline inventories dropped 2.3 million barrels, with the average daily production at 10.5 million barrels, versus a huge 4.6 million barrel build and daily production of 9.7 million barrels a week-earlier.
Distillate inventories last week were down by 2.1 million barrels, which compares with a build of 2.2 million barrels in the prior week. Distillate production in the week to June 8 averaged 5.1 million barrels daily, versus 5.3 million bpd in the previous two weeks.
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Heading into next week’s meeting, attendees are going to have to address rising U.S. output and uncertainty over the outlook for supply because of economic turmoil in Venezuela and the upcoming sanctions against Iran. However, given Friday’s steep sell-off, it looks as if investors are leaning heavily towards an increase in production from oil heavyweights Saudi Arabia and Russian.
The notion that Saudi Arabia and Russia will push for more output was supported by Russian Energy Minister Alexander Novak who said after talks with Saudi Energy Minister Khalid al-Falih in Moscow that both nations “in principle” supported the gradual exit from the deal that was aimed at trimming the global supply and stabilizing prices.
“We in general support this … but specifics we will discuss with the ministers in a week,” Novak said, adding that one option would involve gradually hiking output by 1.5 million bpd, possibly starting from July 1.
Saudi Falih did not offer specific guidance on what any deal in Vienna could look like. But he said: “We will see where we go, but I think we’ll come to an agreement that satisfies, most importantly, the market.”
The market may be pricing in an increase of 1 million barrels per day. I’ve seen estimates as high as 1.8 million bpd and as low as 300,000 bpd. However, a million seems just about right since this is the figure the U.S. is supposed to have asked the Saudis to consider.