Oil Price Fundamental Daily Forecast – Saudi Arabia, Russia Expected to Move Forward with Production Increase
U.S. West Texas Intermediate and international-benchmark Brent crude oil posted a volatile session on Monday as investors positioned themselves ahead of the OPEC meeting in Vienna on June 22-23.
Crude oil plunged early in the session on reports that a group led by OPEC and major OPEC producers, including Russia, planned to raise production by as much as 1 million barrels per day. While most traders expect a production hike, the market is still uncertain as to the amount and the timing of such a move.
It was fear of the unknown that encouraged short-sellers to aggressively cover positions, sending prices sharply higher for the day. Traders also raised issues about possible opposition to the production hike from Iran, Iraq and Venezuela.
Traders also reacted to reports that China could be planning to implement tariffs on U.S. crude oil. Since China is the largest buyer of U.S. oil, their absence could depress prices.
Forecast
Crude oil is trading lower early Tuesday on renewed concerns over an expected production hike from OPEC and major producer Russia. No one is really certain about the size of the increase in output, but Russia is hinting at a gradual rise.
At 0411 GMT, August WTI crude oil is trading $65.30, down $0.39 or -0.59% and August Brent crude oil is at $74.80, down $0.54 or -0.72%.
We’re looking for the volatility to continue on Tuesday as investors are likely to continue to react to signs of a splintered OPEC. While most members of the cartel are likely to follow the lead of Saudi Arabia, there are indications that members Iran, Iraq and Venezuela are preparing to veto any move to increase production.
Furthermore, since the end of May, most of the talking has come from Saudi Arabia and Russia, which is an indication that a tight alliance may be forming between the two major producers.
Early talk is that the Saudi’s and the Russians will go along with a 1 million barrel per day increase. However, some time in the future, Russia may increase production by another 500,000 barrels per day.
Some traders are also saying that even if the increase covers the lost production from Venezuela due to economic issues and the reduced output from Iran due to the U.S. sanctions, the rise in production may fall short of expectations if Iran, Iraq and Venezuela continue to produce at reduced rates.
Finally, investors are keeping an eye on China because it may follow-through on its threat to put a tariff on U.S. crude oil imports now that President Trump has threatened the world’s second largest economy with about $200 billion in new tariffs.
This article was originally posted on FX Empire
