The oil below 50: pros and cons
Waiting for results of the week.
The last month of spring is over; it was efficient for both oil grades: prices updated several maximums and broke through the level of $50 per barrel. Considering the fact that the required results in oil sector hadn’t been achieved in April, May became much more effective.
The end of May, however, faced some new trends, that should affect the oil price during the next month. Let's discuss them.
A regular meeting of OPEC members will be held this week on Thursday, June 2, in Vienna. According to Iraq representative, the next meeting agenda does not contain specific proposals for production quotas. OPEC ministers are unlikely to accept any coordinated decision on production level change during the meeting. At the last meeting in December 2015, the OPEC members decided to keep oil production at the current level, about 31.5 million barrels per day. The cartel postponed the decision on new quota levels until the next meeting due to the uncertainty around Iran.
During the Doha meeting in April of the current year, ministers of oil-producing countries couldn’t reach the agreement on freeze in oil production, that should support prices. Then a number of delegates expressed the hope that the issue could be discussed during or before the OPEC meeting in early June.
Oil prices declined on Monday, due to the pressure of the dollar on the markets, as the production from the Canadian Oil Sands was expected to increase this week.
Benchmark: BRENT/WTI, H1
WTI Crude Oil futures traded for $49,13 per barrel, declined by 19 cents. Brent futures were at the level of $49,11 per barrel, decreased by 21 cents. By the time of the review (11:00 GMT), prices return to $49,21 and $49,7 respectively.
The dollar reached its month maximum against the yen on Monday, but was still stable against other currencies, after the possibility of Fed rate increase in the near future, following the comment of Fed governor, Janet Yellen. In a speech at Harvard University on Friday, Mrs. Yellen assured that the rate may increase if the economy and the labor market would continue to grow.
The stronger dollar raises the price of commodities, denominated in the US currency, for other currencies holders.
The strong dollar triggered a price rise in fuel imports to other countries, that should probably influence the demand.
The expected production increase in the Canada Oil Sands also put pressure on WTI.
Despite the expected production growth in Canada, the WTI price support "continues" after the significant decline in the US oil reserves, which decreased by 4.2 million barrels up to 537 million barrels due to strong demand.
On Friday evening, Baker Hughes, the oilfield services provider, announced that number of drilling rigs in the US was still declining and fell by 2 up to 316 for the last week.
So, the predictions for the current week: the US macroeconomic factors and oil production in North America (USA, Canada) will be in focus. The OPEC meeting could heighten the interest in the both oil grades, that may cause the short-term increase in the cost per barrel. Both oil grades may still be in the price range of $$48-52 per barrel.