Oil Price Fundamental Daily Forecast – With Output Hikes Looming, Prices Poised to Test Value Areas
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Friday after recapturing earlier losses. Despite the intraday turnaround, the markets are in a position to post their biggest weekly drop since the week-ending May 21. Expectations of more supply and weak U.S. fuel demand are spooking investors, but so far not enough to take out last week’s low.
At 09:41 GMT, September WTI crude oil is trading $71.71, up $0.33 or +0.46%. This is up from an intraday low of $70.87. September Brent crude oil is at $73.72, up $0.25 or +0.34%. This is up from an intraday low of $72.94.
Perhaps keeping a lid on prices are renewed concerns over demand due to a resurgence in the COVID-19 Delta-variant in parts of the world. Meanwhile, new import figures from India were deemed bearish as the country battles a massive coronavirus outbreak.
Saudi, UAE Reach Compromise to Unlock More Oil Supply, Source Tells Reuters
Saudi Arabia and the United Arab Emirates (UAE) have reached a compromise over OPEC+ policy, an OPEC+ source said on Wednesday, in a move that should unlock a deal to supply more crude to a tight oil market and cool soaring prices.
In a statement on Wednesday, the UAE energy minister said that a deal with OPEC+ on its baseline is yet to be reached and that deliberations are continuing.
OPEC+ and its allies including Russia, still need to make a final decision on output policy, after talks this month were abandoned because of the Saudi-UAE dispute.
According to Reuters, an OPEC+ source said Riyadh had agreed to Abu Dhabi’s request to have UAE’s baseline – the level from which cuts under the OPEC+ agreement on supply curbs are calculated – set at 3.65 million bpd from April 2022, up from 3.168 million now.
Giving the UAE a higher production baseline paves the way for extending the overall pact to the end of 2022, the OPEC+ source said.
OPEC+ has yet to make a final decision about the production deal. It was not immediately clear if other countries would also adjust their baselines.
Daily Forecast
Friday’s price action and the fact that last week’s low at $70.10 for WTI and $72.10 for Brent remain intact suggests there isn’t panic selling in the market. The daily trend is down and there is room for more downside pressure, but it looks as if the selling is going to be an orderly process.
There has to been some price adjustment because more oil will be coming to the market, but as of Friday, traders may not know how to value crude until they know the extent of the production hikes. That being said, we’re probably going to see a sideways trade with a slight bias to the downside over the near-term until OPEC+ makes its final decision and the market knows how much other countries will adjust their baselines.
If the correction continues through last week’s lows at $70.10 for WTI and $72.10 for Brent then look for a break into a value area. This is where the new buyers will step in.
The nearest value zone for September WTI crude oil is $68.57 to $66.79 and for September Brent is at $71.06 to $69.46.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
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