Oil Price Fundamental Daily Forecast – OPEC Plan to Raise Production Left No Room for Supply Disruptions
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher early Wednesday, underpinned by supply disruptions in Libya and Canada. On Tuesday, the U.S. State Department ignited a spike to the upside after saying all countries should stop Iranian crude imports in November.
At 0605 GMT, August WTI crude oil is trading $70.71, up $0.19 or +0.28% and September Brent crude oil is at $76.30, up $0.18 or +0.21%.
Last Friday, OPEC and other major non-OPEC producers tried to alleviate supply concerns over lost output from Venezuela and Iran by raising production. However, they weren’t factoring potential supply disruptions from Canada or Libya, which are helping to generate support for prices this week.
Furthermore, based on Tuesday’s price action, it looks as if they didn’t expect the United States to tell countries to cut imports of Iranian oil to zero from November at this time. This news caught investors off-guard on Tuesday, fueling the second major short-covering rally in three trading sessions.
I still think that most of the price action is being driven by short-covering because given the volatility in the news, it’s not in the best interest of the hedge funds to chase this market higher.
The situation with Iran is pretty clear, given the direction by the U.S. government although China and Russia may not comply with the request. The variables driving the market higher are the supply disruptions in Libya and Canada because these two events are likely to reach a conclusion in the short-term.
In Canada, for instance, repairs to a critical oil sands upgrader at Syncrude Canada are likely to last until the end of July. This means the loss of 350,000 barrels per day is likely to contribute to a major draw in U.S. crude inventories.
Forecast
In other news, the American Petroleum Institute (API) on Tuesday reported a 9.2 million barrel reduction in U.S. crude inventories in the week to June 22 to 421.4 million barrels.
Later today at 1430 GMT, the U.S. Energy Information Administration is expected to show a 2.4 million barrel draw down, however, this figure could increase going into the report.
While we expect to see short-term volatility because of the EIA report and over whether hedge funds will chase this market higher, or wait for a pullback into support, the longer-term picture is starting to look bullish.
Basically, the OPEC decision to elevate output still left production restraints in place. Therefore, the market will still have a hard time rebuilding inventories even with rising U.S. production. Based on this assessment, we have to conclude that with demand increasing, we’re going to see a supply deficit later this year.
Even though U.S. production is increasing, the ability to increase exports is being hindered by the lack of pipeline capacity. And this problem may not be fixed until next year.
This article was originally posted on FX Empire
