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Oil Price Fundamental Daily Forecast – Higher Rig Count, Rising U.S. Production Still Concerns

James Hyerczyk

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower early in the session on Monday after an attempt to breakout to the upside fizzled, encouraging investors to book profits.

At 0045 GMT, June WTI Crude Oil futures are trading $66.85, down $0.48 or -0.73% and June Brent Crude Oil is at $71.98, down $0.60 or -0.83%.

Daily June West Texas Intermediate Crude Oil

After driving prices to their highest closes for the week on Friday, the market were on edge all week-end after the U.S., U.K. and France attacked Syria, targeting military positions and research weapons linked to chemical weapons.

Russia, Iran and Lebanon’s Hezbollah group condemned the action while rallying around the Syrian Assad regime. Also of note, they did not threaten retaliation. In the meantime, Saudi Arabia said it would take part in the U.S. coalition if asked. Additionally, the U.S. said it remained “locked and loaded” if there were further chemical attacks on civilians or a retaliation.

Daily June Brent Crude

Forecast

Despite the early setback on Monday, the crude oil market remain on edge and at heightened volatility levels because of the fiery rhetoric being spewed by Russian President Vladimir Putin who warned on Sunday that further Western attacks on Syria would bring chaos to world affairs, as Washington prepared to increase pressure on Russia with new economic sanctions.

In a telephone conversation with his Iranian counterpart Hassan Rouhani, Putin and Rouhani agreed that the Western strikes had damaged the chances of achieving a political resolution in the seven-year Syria conflict, according to a Kremlin statement.

“Vladimir Putin, in particular, stressed that if such actions committed in violation of the U.N. Charter continue, then it will inevitably lead to chaos in international relations,” the Kremlin statement said.

Profit-taking and the fact that there have been no disruptions to the crude oil supply after the week-end attack are two reasons for Monday’s weakness.

Additionally, traders are not forgetting that U.S. crude production reached a fresh weekly record of 10.53 million barrels per day, which led to the increase of U.S. crude stocks by 3.3 million barrels in the week to April 6. Furthermore, the U.S. rig count rose by seven to reach 815 in the week-ending April 13, the highest since March 2015, according to Baker Hughes data.

Although increased speculative buying launched last week’s huge rallies in WTI and Brent crude oil, the market is being underpinned for legitimate reasons. Last week, the latest reports from OPEC and the International Energy Agency, showed that total QECD commercial oil stocks are standing just 30-40 million barrels above the 5-year average, from more than 400 million barrels in 2016.

Also last week, The OPEC Secretary-General declared that the global oil surplus would be eradicated by September, while the IEA indicates that this could be the case as early as next month.

Traders and analysts are saying that this forecast is being backed by data which shows OPEC current production at 0.6-0.7 million barrels per day below its mandate for production at 32.5 million barrels per day and demand growth that is estimated to be 1.5-1.8 million barrels per day. This should be more than enough to offset the rise in non-OPEC production this year, estimated at 1.8 million barrels per day.

This article was originally posted on FX Empire

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