Oil Price Fundamental Daily Forecast – US Production Outweighing OPEC-led Attempts to Trim Supply

U.S. West Texas Intermediate and international-benchmark Brent crude oil prices are trading lower on Tuesday with traders attempting to claw-back earlier losses. Brent is the weaker of the two, having fallen below 200-day Moving Average support which suggests hedge fund liquidation. WTI is still holding above this important support level, but downside momentum is threatening to take it out.

At 08:29 GMT, September WTI crude oil futures are trading $59.67, down $0.01 or -0.02% and September Brent crude oil is at $66.44, down $0.04 or -0.05%.

Prices sold off sharply on Monday and the selling pressure continued early Tuesday as output in the Gulf of Mexico resumed after being shut down as a precaution ahead of the arrival of Hurricane Barry. Furthermore, traders braced for a report that was expected to show record U.S. shale production

According to reports, producers on Monday began restoring some of the roughly three-quarters of output that was halted at Gulf of Mexico platforms ahead of Hurricane Barry. With the storm passing the region quickly, there isn’t expected to be any major damage to the platforms, which means normal production will resume sooner than expected.

On Monday, there was 1.3 million barrels per day (bpd) of oil production offline in the Gulf, about 80,000 barrels fewer than on Sunday. This indicates the process is slow, but nonetheless potentially bearish for prices. The selling we saw on Monday was likely related to liquidation of speculative long positions placed ahead of the arrival of the hurricane.

US Shale Output to Rise

Traders are also bracing for another jump in U.S. shale production. According to the U.S. Energy Information Administration (EIA) monthly drilling productivity report, U.S. oil output from seven major shale formations is expected to rise by about 49,000 bpd in August, to a record 8.55 million bpd. Overall U.S. crude production is now more than 12 million bpd.

Daily Forecast

With short-term bullish events like the hurricane or a dispute in the Middle East subsiding, traders are being forced to look at the dominate supply and demand factors. And the picture they are painting is bearish.

Yesterday, the EIA issued a bearish report on U.S. supply. Last week, OPEC and the International Energy Agency (IEA) released bearish reports on demand.

Essentially, the rising U.S. output and lower demand are undermining OPEC and its allies’ efforts to trim the global supply and stabilize prices. Prices could continue to fall because of these factors. Prices could plunge if conditions between the United States and Iran improve.

Look for volatility today with the release of the American Petroleum Institute’s (API) weekly inventories report at 20:30 GMT.