Oil Price Fundamental Weekly Forecast – U.S. Drillers Add 15 New Oil Rigs

U.S. West Texas Intermediate and international-benchmark Brent crude oil settled sharply lower last week. Technically, the WTI futures contract formed a potentially bearish closing price reversal top. This could trigger the start of a 2 to 3 week correction.

Fundamentally, the markets were pressured by the possibility of increased production from OPEC and other major non-OPEC producers for the first time since 2016. This news offset potentially bullish supply disruptions from both Venezuela and Iran.

July WTI crude oil settled at $67.88, down $3.49 or -4.89%  and July Brent crude oil finished the week at $76.44, down $2.07 or -2.64%.

Helping to trigger the steep drop in prices was Russian Energy Minister Alexander Novak, who said a group of producer nations could soon begin easing production limits aimed at balancing the market.

“The moment is coming when we should consider assessing ways to exit the deal very seriously and gradually ease quotas on output cuts,” Novak said in televised comments, according to Reuters.

Russia had been floating the idea of ending the production for several weeks, with energy minister Alexander Novak saying on Thursday that restrictions on oil production could be eased “softly” if OPEC and non-OPEC countries see the oil market balancing in June.

Also worrying bullish crude oil traders was a sustained rise in gasoline inventories just ahead of the Memorial Day holiday in the United States, which typically marks the start of the summer driving season.

In other news, an unexpected build in U.S. crude oil inventories also weighed on prices, driving the spread between Brent crude and U.S. West Texas Intermediate (WTI) close to its widest in three years.

On Wednesday, the U.S. Energy Information Administration (EIA) said commercial crude inventories rose by 5.8 million barrels in the week to May 18. This surprised traders who were looking for a draw of 1.6 million barrels.

Additionally, U.S. crude oil exports dropped by more than 800.000 barrels a day last week to about 1.75 million barrels a day. Meanwhile, crude imports were up by 558,000 barrels and refiners produced less distillate fuel, which includes diesel and heating oil.

Gasoline stockpile levels also surprised the market by jumping 1.9 million barrels a day, while distillate inventories fell slightly less than expected.

Forecast

The bearish fundamentals and technical chart pattern could carry over into this week’s price action. Instead of looking at upside targets, investors will be looking for potential downside targets and value areas.

One key indicator to watch is hedge fund activity. They have been sellers throughout the entire rally so it stands to reason that the sell-off won’t stop until they start to become aggressive buyers again.

Prices could also be pressured early in the week by another jump in the rig count. According to oilfield services company Baker Hughes, U.S. drillers added 15 oil rigs in the last week. The total U.S. rig count now stands at 859.