Oil Price Fundamental Weekly Forecast – EIA Says American Production Approaching Top Producer Russia Output
U.S. West Texas Intermediate and international-benchmark Brent crude oil settled mixed last with WTI continuing its two-week price slide and Brent edging slightly higher. The price action was primarily driven by increased U.S. production as American oil output moved closer to matching that of top producer Russia.
July WTI crude oil settled the week at $65.81, down $2.07 or -3.05% and international-benchmark August Brent crude oil closed at $76.79, up $0.32 or +0.42%.
The major story in the markets at this time is the disconnect between WTI and Brent crude oil. The spread differential between the two futures contracts reached a three-year high last week, above $11 a barrel. The premium has doubled in less than a month, as a lack of pipeline capacity in the United States has trapped a lot of output inland.
According to the U.S. Energy information Administration in its monthly report, U.S. crude oil production jumped 215,000 barrels per day (bpd) to 10.47 million bpd in March, the highest on record.
In other crude oil news, oil imports from Venezuela dropped more than 3 million bpd to 13.21 million bpd in the month, approaching the all-time low 13.20 million bpd, reported in January of 2003.
U.S. crude stockpiles fell 3.6 million barrels in the week-ending May 25, the EIA said, exceeding expectations for a decline of 525,000 barrels.
U.S. energy companies added oil rigs for a second week in a row. Drillers added two oil rigs in the week to June 1, bringing the total count to 861, the highest since March 2015, General Electric’s Baker Hughes energy services firm said in its closely followed report on Friday.
Forecast
The expected increase in output orchestrated by Saudi Arabia and Russia seems to have been fully-priced into the market. Sources told Reuters last week that OPEC and other non-OPEC producers were discussing boosting output by about 1 million bpd to compensate for losses from Venezuela and to address concerns about the impact of U.S. sanctions on Iranian output.
The exact amount is something that could be debated by speculators until June 22 when OPEC holds a meeting to discuss the matter. This gives traders plenty of time to feed the market with enough information to create a volatile, two-sided trade.
One piece of information released last week that helped Brent recover from its lows was that a Gulf source said that any rise in production would be gradual.
Russia also said that it would be able to raise its oil output within months to levels last seen before a global production-cutting deal took effect if there is a decision to unwind the pact, a Russian Energy Ministry official said.
Based on last week’s price action, it looks as if the spread between Brent and WTI crude could continue to widen this week especially if U.S. production continues to rise and OPEC and the non-OPEC producers continue to say that any increases in supply will be gradual.
This article was originally posted on FX Empire
