As expected in our last week’s Oil Price Commentary, crude oil prices fell sharply last week because of pressure from growing doubts about OPEC’s deal to cut output and from the rising US dollar. On Monday, Brent crude and WTI fell from around $57/bbl and $54/bbl to $55/bbl and $52/bbl respectively. The fall in oil prices was further intensified on Tuesday and Wednesday when Brent crude and WTI fell to around $53/bbl and $50/bbl respectively after the American Petroleum Institute (API) and Energy Information Administration (EIA) reported around 4 million build in U.S. crude stockpiles.
Brent Crude Oil Price
Despite bearish sentiments in the oil market earlier last week, oil futures failed to hit new lows and reversed course on Thursday and Friday as a result of a few bullish headlines. News about Saudi Arabia’s oil output cut, positive comments from OPEC’s Secretary-General Mohammad Barkindo, strong demand growth in China and a weaker dollar helped oil prices recover by end of the week. On these news, Brent crude and WTI closed the week higher around $55/bbl and $52/bbl, yet still lower than where they started the week.
Last Week Oil Market Data
1- Rig Count:
U.S. oil rig count fell last week for the first time after 11 weeks of consecutive increases. According to Baker Hughes rig count service, the number of active oil rigs fell by 7 to a total of 522. The number of active gas rigs was up by 1 rig to 136. With 6 rigs down, the total number of active rigs in the U.S. is at 659, 9 rigs up from the same week a year ago.
Canada’s rig count was also up last week by around 54 percent. According to Baker Hughes rig count services, Canada rig count is up by 110 rigs to 315 from the week before. At its current level, Canada’s rig count is 88 rigs up from the same period a year ago.
2- U.S. Crude Oil Stockpiles:
Last week, U.S. crude oil stockpiles was one of the main reason for the fall in oil prices. According to EIA’s Weekly Status Report, U.S. crude stockpiles increased by 4.1 million barrels to 483.1 million. The increase in US crude inventories put a huge pressure on oil prices and drove it down last week. The impact of this increase will also pressure oil prices this week during the first two days of trading.
3- U.S. Crude Oil Production:
Adding to the pressure to oil prices, last week the EIA reported a huge uptick in U.S. crude oil production. According to the data published by the EIA, U.S. crude oil production was up by around 176,000 bbl/day to 8,946,000 bbl/day. It appears that it will not take long for U.S. crude oil production to go back above 9,000,000 bbl/day. A level last seen on April last year. The increase of U.S. oil production was high and its negative impact will take place this week putting a lot of pressure on oil prices.
This Week Oil Price Forecast
Looking at last week’s oil market data and news, it is clear that oil prices are set to face another week of high pressure despite the support by OPEC’s members last week. In the one hand, we have a huge increase in U.S. crude oil production, a sharp uptick in crude inventories, strong U.S. dollar, and potential increases in crude oil production from countries like Nigeria and Libya.
On the other hand, we have few positive yet highly doubted comments by the oil market until action are taken. These comments are coming from OPEC’s members including Saudi Arabia that these producers are cutting their oil output in line with their recent accord to cut back the cartel’s oil output by 1.2 million barrels to no more than 32.5 million barrels a day. Along with OPEC, other producers such as Russia will reduce their oil output by 600,000 barrels a day.
Oil Price Forecast
Balancing both sides, one can see that, while OPEC is trying to carefully help the oil market balance, the increase in U.S. crude oil production and rig count does the complete opposite. In fact, by cutting oil output, and helping oil prices stabilize above $50/bbl, OPEC is encouraging US shale oil producers to ramp up their oil output. In another word, OPEC is indirectly creating another downturn in the oil market.
The overall outlook for oil prices this week is quite negative. Oil prices will still face a high pressure to move upward despite the support by OPEC’s members. Brent crude and WTI futures are expected to be traded around $55/bbl and $52/bbl respectively. Prices may lose around 1 percent during the first two days of trading. The fall could further intensify if the EIA reported another increase in U.S. crude stockpiles which is highly likely.
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Remark: The expectation of oil prices’ direction in this commentary are based on the oil market data and news up until the time of writing this commentary. As the week starts, new data and news are reported and could influence oil prices differently. Therefore, the direction of oil prices cloud be different from what was expected here. It is important to stay updated with oil market data and events as they occur.
