Oil Price Fundamental Weekly Forecast – Two-Sided Movement Until OPEC Decision on June 22

U.S. West Texas Intermediate and international-benchmark Brent crude oil closed lower in a relatively uneventful week. The news was essentially bullish, but not enough to change investor sentiment that is being primarily driven by fears of increased production from OPEC and its allies.

July West Texas Intermediate crude oil settled at $65.74, down $0.21 or -0.32% and August Brent crude oil finished the week at $76.46, down $0.86 or -1.12%.

Fundamentally, the U.S. Energy Information Administration reported another rise in U.S. production. The EIA said crude oil output hit another record last week at 10.8 million barrels per day (bpd).

U.S. crude inventories also rose, gaining 2.1 million barrels in the week to June 1, to 436.6 million barrels, according to EIA data.

While the weekly EIA crude oil inventories news may have been supportive, the story providing the most support for prices came out of Venezuela. For weeks, traders had been reacting to reports that OPEC would increase production partly because of short-fall in Venezuelan output. This week, however, it was revealed that the situation was much worse than anticipated.

According to Reuters data, Venezuela is nearly a month behind in shipping crude to customers from its main oil export port as chronic delays threaten to breach state-run PDVSA’s crude supply contracts if they are not quickly cleared.

Reuters went on to say that tankers waiting to load more than 24 million barrels of crude, almost as much as PDVSA shipped in April, are sitting off the country’s main oil port. The backlog is so severe, PDVSA has told some customers it may declare force majeure, allowing it to temporarily halt contracts, if they do not accept new delivery terms.

In other news, gains were limited by concerns about surging U.S. output and falling demand in China. Additionally, sellers also reacted to the news that J.P. Morgan cut its crude price forecast.

Finally, according to General Electric’s Baker Hughes energy services firm, U.S. energy companies added one oil rig in the week to June 8, bringing the total count to 862, the highest level since March 2015.

Forecast

WTI crude oil continues to sit at a key level on the charts. Trader reaction to this area will either fuel the start of a meaningful short-covering rally, or another steep plunge in prices.

The chart pattern indicates that investors are waiting for OPEC to make the next call. If OPEC decides to make up for the entire Venezuelan shortfall plus any shortages it expects from sanctions against Iran then oil prices are likely to retreat further.

If OPEC decides not to make up most of the shortfall in Venezuela, or if the troubled nation decides to declare force majeure then we could see a spike to the upside in prices.

Traders are also concerned that the OPEC-led group will do nothing to fill in the supply deficit from Venezuela and the potential sanction related shortage from Iran.  OPEC-member Iraq said Wednesday that a production increase was not on the table as the market was stable and prices good. This indicates that the 1 million bpd increase that the market has been pricing in for two weeks, may not take place after all.

OPEC is set to meet at its headquarters in Vienna, together with top producer but non-OPEC member Russia, on June 22 to discuss production policy.