Oil Price Fundamental Weekly Forecast – Concerns Being Raised Over Continuation of OPEC-led Supply Cuts

James Hyerczyk
Updated
U.S. energy firms last week reduced the number of oil rigs operating for the first time in three weeks as production growth forecasts from shale, the country’s largest oil fields, continue to shrink.

U.S. West Texas Intermediate crude oil and international-benchmark Brent crude oil futures looked tired all week, which could be the first signs of a top-heavy market. Although it reached a new 5-month high last week, WTI crude oil struggled with the $64.70 are for a third time in a week. However, it did continue to find support at $63.48. Brent crude oil continued to bump up against a key technical area at $71.77

Last week, June WTI crude oil settled at $64.07, up $0.05 or +0.08% and June Brent crude oil finished at $71.97, up $0.42 or +0.58%.

Prices continued to be underpinned by the OPEC-led production cuts and U.S. sanctions against Iran and Venezuela, but also received support from news of lower exports from Saudi Arabia and an unexpected drawdown in U.S. inventories.

Most of the news last week was bullish, but traders seemed reluctant to buy. Technical factors may have contributed to the price action, but most traders believe uncertainty over whether the U.S. will increase pressure on Iran and worries that the deal between OPEC and its allies including Russia will come to end in June, limited gains.

Key Inventories Data

The EIA reported last week that U.S. crude inventories fell by 1.4 million barrels in the week-ending April 12. Traders were looking for a 1.6 million barrel build. Gasoline stockpiles fell 1.2 million barrels during the same time period, while distillate fuel inventories fell by 362,000 barrels.

The EIA also reported a gasoline production rate of 9.9 million barrels daily last week and a distillate fuel production rate of 4.8 million barrels daily. This compares with 10.2 million bpd of gasoline for the prior week and 5 million bpd for distillate fuel. Refinery throughput averaged 16.1 million bpd last week.

U.S. imports dipped back towards the 6 million barrel per day mark while implied crude supply numbers remained firm.

Iran’s crude exports have dropped in April to their lowest daily level this year, suggesting a reduction in buyer interest ahead of expected further pressure from Washington.

U.S. crude oil output from seven major shale formations was expected to rise by about 80,000 bpd in May to a record 8.46 million bpd, the EIA said earlier in the week.

Number of Operating Oil Rigs Decline

U.S. energy firms last week reduced the number of oil rigs operating for the first time in three weeks as production growth forecasts from shale, the country’s largest oil fields, continue to shrink. Drillers cut eight oil rigs in the week to April 18, bringing the total count down to 825, General Electric’s Baker Hughes energy services firm said.

Weekly Forecast

As we continue to move toward the OPEC meeting in June there is going to be increasing speculation over whether the deal to cut production, trim the excess global supply and stabilize prices will continue. This could continue to weigh on gains, while triggering a few volatile reactions to the downside.

Concerns are being raised over growing suspicion that OPEC and its allies including Russia will put an end to their strategy to cut production in June instead of extending it into the second half of the year as Saudi Arabia desires.

There is increasing speculation that Russia may make a move to recapture U.S. market share. Earlier in the week, Russia’s Finance Minister Anton Siluanov said that prices could drop as low as $40 a barrel if the OPEC-led deal ended early.

Chart-watchers want to see $63.48 hold as support for June WTI crude oil. Furthermore, they’d like to see a sustained rally over $71.77 for June Brent crude oil.

This article was originally posted on FX Empire

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