Mixed Messages From OPEC+ Keep Markets On Edge

On Thursday, US benchmark July crude oil futures prices declined after Russian Deputy Prime Minister Alexander Novak suggested that there might not be any additional production cuts by OPEC+ in their upcoming meeting. Novak expressed doubt about the likelihood of further cuts, referring to previous decisions made regarding voluntary reductions in oil production by certain countries.

Contradictory Statements Fuel Uncertainty for OPEC+ Meeting

The recent statements from key OPEC+ producers have been contradictory, creating uncertainty about the outcome of the next meeting. Earlier in the week, oil prices received support when Saudi Arabia's energy minister cautioned investors against betting on lower oil prices, leading some to speculate that OPEC+ might consider implementing more output cuts in their June 4 meeting. However, it now appears that OPEC+ producers themselves are being affected by the decline in oil prices.

Just a week before Prince Abdulaziz's remark, Russian President Vladimir Putin stressed the necessity of oil production cuts to maintain a certain price level.

Oil Price Losses Limited Amid Optimism Over Potential US Spending Deal

Despite the initial drop, oil price losses were limited later in the trading session due to optimism surrounding a potential deal between US President Joe Biden and top congressional Republican Kevin McCarthy. The deal aims to reduce spending and raise the government's debt ceiling, which currently stands at $31.4 trillion. While the specific breakdown of spending categories has not been disclosed, sources indicate that the two sides are only $70 billion apart on the total figure, which would exceed $1 trillion.

Russian Deputy Prime Minister Expects No New Steps from OPEC+

Russian Deputy Prime Minister Alexander Novak does not expect any new measures to be taken by the OPEC+ group of oil producers at their upcoming meeting in Vienna on June 4. This comes after the group implemented significant output cuts earlier this year.

Novak attributed the lack of further oil price increases to high U.S. interest rates and a slower-than-expected Chinese economic recovery. In April, Saudi Arabia and other OPEC+ members announced cuts of over one million barrels per day in response to falling crude prices.

Novak expressed optimism that Brent prices would exceed $80 per barrel by the end of the year. He emphasized that current prices around $75-76 reflect the global macroeconomic situation. Additionally, Novak stated his hope for increased oil demand in the summer but clarified that the goal is to achieve a balance rather than inflate prices.

Russian President Vladimir Putin also indicated that no action may be necessary at the next OPEC+ meeting as energy prices approach economically justified levels.

Saudi Energy Minister Warns Short Sellers of Consequences Ahead of OPEC+ Meeting

Saudi Arabia's Energy Minister, Prince Abdulaziz bin Salman, warned short sellers of more consequences and urged them to be cautious ahead of an upcoming OPEC+ meeting. Speaking at the Qatar Economic Forum, he stated that speculators would face repercussions and referenced their losses in April. Short sellers bet on declining oil prices and are forced to close their positions at a loss when OPEC+ unexpectedly reduces production, leading to a price rally.

Saudi Arabia, the world's largest oil exporter, and other OPEC+ producers implemented voluntary production cuts in April, which helped boost prices. Analysts from Standard Chartered bank noted that short speculative positions are as bearish as they were at the start of the pandemic, increasing the likelihood of further production cuts during the OPEC+ meeting. Prince Abdulaziz emphasized that despite criticism, the alliance would continue to be proactive and hedge against future uncertainties.

He criticized the International Energy Agency (IEA) for its inaccurate forecasts, blaming it for market volatility. The IEA recently upgraded its forecast for 2023 oil demand, predicting a supply shortage in the second half of the year. The OPEC+ meeting is scheduled for June 4 in Vienna.

US Oil Prices Soar Amid Significant Decline in Crude and Fuel Supplies

U.S. oil prices surged to their highest level since May 1 as government data revealed a significant decline in crude oil, gasoline, and distillate supplies. The Energy Information Administration (EIA) reported a massive weekly drawdown of 12.5 million barrels in crude inventories, surpassing analysts' expectations. The drop in stockpiles was attributed to increased exports, reduced imports, and higher refinery demand, despite a rise in U.S. production.

However, there was an increase in supplies at the Cushing terminal, the main delivery hub for U.S. crude futures. This terminal saw a gain of 1.8 million barrels, reaching 37.2 million barrels. The crude supply cover decreased from 29.5 days to 28.7 days compared to the previous week but remained higher than the 26.5-day supply cover during the same period last year.

Moving on to petroleum products, gasoline supplies fell for the third consecutive week, exceeding expectations with a decline of 2.1 million barrels. This drop was driven by increased demand. The current stock of gasoline stands at 216.3 million barrels, which is 1.5% lower than last year and 8% below the five-year average.

Similarly, distillate fuel supplies, including diesel and heating oil, decreased for the ninth time in 11 weeks, dropping by 561,000 barrels. This decline was a result of higher usage. The market had anticipated an unchanged supply level. Current distillate inventories are 1.1% lower than last year and 18% below the five-year average, standing at 105.7 million barrels.

Finally, refinery utilization rates experienced a slight dip, decreasing by 0.3% to reach 91.7% compared to the previous week's figures. This indicates a decrease in refinery activity.

Weekly Technical Analysis

Weekly July WTI Crude Oil

Trend Indicator Analysis             

The main trend is down according to the weekly swing chart. A trade through $63.90 will reaffirm the downtrend. A move through $82.91 will change the main trend to up.

Retracement Level Analysis

The contract range is $37.18 to $99.09. Its retracement zone at $68.13 to $60.83 is the major support. The market tested this area successfully three weeks ago at $63.90, with enough buying coming in to reestablish the zone as support.

The minor range is $82.91 to $63.90. Its retracement zone at $73.41 to $75.65 is resistance. It stopped the rally this week at $74.73. The market would have to overcome this zone to get excited about the upside potential.

Weekly Technical Forecast

The direction of the July WTI crude oil market the week-ending June 2 is likely to be determined by trader reaction to the minor 50% level at $73.41.

Bullish Scenario

A sustained move over $73.41 will signal the presence of buyers. This could lead to a quick test of the minor Fibonacci level at $75.65. Overcoming this level could trigger an acceleration to the upside.

Bearish Scenario

A sustained move under $73.41 will signal the presence of sellers. This could lead to a retest of the major 50% level at $68.13. This level has to hold or prices could collapse into the support cluster at $63.90 - $60.83.

Short-Term Outlook

The short-term forecast for oil prices is bullish. The conflicting statements from key OPEC+ producers about potential production cuts have introduced uncertainty in the market. However, there is optimism surrounding a potential deal between US President Joe Biden and top congressional Republican Kevin McCarthy, aimed at reducing government spending and raising the debt ceiling. This positive sentiment has provided support to oil prices.

Furthermore, government data has revealed a significant decline in crude oil, gasoline, and distillate supplies, surpassing analysts' expectations. The drop in inventories can be attributed to increased exports, reduced imports, and higher refinery demand, despite a rise in US production. The tightening supply-demand balance indicated by these inventory declines, along with a slight dip in refinery utilization rates, suggests a potential increase in oil prices.

While short-term price movements can be influenced by various geopolitical, economic, and market-specific factors, the current data points towards a bullish outlook. It is essential for market participants to stay informed about the latest news and developments to accurately assess the situation and make informed decisions.