U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading sharply lower early Monday, pressured by expectations that OPEC and other major Non-OPEC members are preparing to raise output.
Monday’s early weakness comes on the heels of a steep 3 percent drop on Friday that was fueled by concerns over rising production, a surge in the U.S. Dollar and renewed trade tensions between US-China.
After withholding output since January 2017, a cartel of consisting of OPEC and major non-OPEC producers like Russia appear to be ready to announce that they will be increasing output at OPEC’s meeting in Vienna on June 22-23. The major market players are expecting production to rise, they just aren’t sure about the timing and the size of the boost in production. Some early guesses are for a 1 million barrel per day increase.
The increase in production is expected to be in response to lower output from Venezuela and lost output due to upcoming sanctions against Iran. However, traders are now saying that a threat by China to slap a duty on U.S. oil imports in response to announcements by the Trump administration of new import sanctions on China is also pressuring prices. Some analysts are saying this move would take the trade war to a new level of seriousness.
There’s nothing in the news today as far as supply and demand is concerned so traders are likely to respond to any new production increase estimates from OPEC. The bogie is 1 million barrels so any forecasts of greater than this number will lead to further downside pressure. Talk of less than 1 million barrels could lead to some position-paring and short-covering.
The 1 million barrel figure is rumored to be the amount the United States asked Saudi Arabia to consider.
According to the charts, August Brent crude oil is currently testing a key technical retracement zone at $73.33 to $71.63. August WTI crude oil is in a freefall with $62.99 the next major downside target.
This article was originally posted on FX Empire
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