Oil Price Fundamental Weekly Forecast – Generally Bullish Tone on Optimism Over Trade Deal; OPEC to Continue Production Cuts
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished higher last week despite below average volume and volatility after Wednesday’s government stockpiles report.
Crude oil opened the week with a bullish tone as buyers took insurance against a potential supply disruption due to rising tensions between the United States and Iran. Prices were further supported by another bigger than expected draw down in U.S. stockpiles.
However, the markets became rangebound into the end of the week as many of the major players took to the sidelines ahead of the meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G-20 summit in Osaka, Japan on Saturday. Also contributing to the rangebound trade was general uncertainty ahead of the OPEC meeting in Vienna on July 1-2.
Last week, August WTI crude oil settled at $58.47, up $1.04 or +1.81% and September Brent crude oil closed at $66.55, up $2.10 or +3.16%.
U.S. Energy Information Administration Weekly Inventories Report
WTI and Brent prices climbed to their respective highs of the week after the U.S. government reported a weekly drop of nearly 13 million barrels in domestic crude stocks. The drawdown was about 10 million barrels bigger than expected. In other news, gasoline futures also rallied on reports of the planned closure of a key East Coast refinery.
The EIA reported last Wednesday that U.S. crude supplies dropped by 12.8 million barrels for the week-ended June 21. Traders were looking for a decline of 2.8 million barrels in crude stocks, on average. Earlier in the week, the American Petroleum Institute reported a 7.5 million-barrel fall. Net crude imports also dropped below 3 million barrels per day, the second-lowest in the EIA’s records.
The EIA report also showed that gasoline inventories were down by 1 million barrels, while distillate stockpiles fell 2.4 million barrels the previous week. Traders were looking for supply declines of 1.1 million barrels each for gasoline and distillates.
Other News
The Philadelphia Energy Solutions refinery plans to permanently shut down, following an explosion and fire at the 335,000 barrel per-day refinery Friday.
Weekly Forecast
Given the events over the weekend at the G-20 summit in Osaka, Japan, traders are looking for a generally bullish trade at the start of the week. Prices could get a further boost from a favorable outcome of the talks between OPEC and its allies later in the week.
At the G-20 summit, U.S. President Donald Trump and Chinese President Xi Jinping agreed to resume trade talks after nearly two months of stalemate. Trump also said he would not increase tariffs further, and China said it would buy more U.S. soybeans.
The news is generally bullish because it brings the two sides closer to reaching a permanent deal to end the trade dispute that is threatening to trigger a global recession. The news affects the demand side of the equation.
Affecting the supply side will be the decision at the OPEC-led meeting between major oil producers on July 1 -2. It is widely expected that OPEC and its allies, including Russia will continue to cap production at about 1.2 million barrels per day.
We aren’t expecting to hear much about US-Iran relations this week. There may be secret negotiations going on for all we know. Given Trump’s threat to attack the country if provoked, we’d be surprised if Iran blew up a tanker this week. Nonetheless, concerns over an escalation of events in the region should continue to provide support for crude oil prices.
We’re looking for a generally bullish tone this week.
This article was originally posted on FX Empire
