Why Crude Oil Price Forecasts Revised US Crude Oil Futures

This year, in addition to increased demand due to travel during the Independence Day holiday, increased interest from Japan and South Korea for US oil could help reduce the oversupply and bring prices slightly higher, as will a reduction in USA drilling activity in June, the first time that the US has scaled back its production since January. Brent futures benchmark also mimicked the movement to post a 28 cent gain, resulting in a pricing of $47.59 per barrel.

US crude futures recently traded up 54 cents, or 1.17%, at $46.58 a barrel on the New York Mercantile Exchange.

On Friday, data from USA energy services firm Baker Hughes revealed drilling activity for new oil production dropped by two rigs.

The oil market shrugged off news that production from Libya, one of two OPEC members exempt from the group's supply deal, had soared above 1 million barrels per day.

Investors came into this year optimistic, and indeed, US crude prices topped out near $55 a barrel in February in the wake of the deal struck by the Organization of the Petroleum Exporting Countries with other key producers to reduce supply by 1.8 million barrels per day (bpd) that began in January.

"Some market participants recognized that prices went up too strongly last week", said Carsten Fritsch, an analyst with Commerzbank.


As OPEC glares at the surge in United States shale production that is threatening to derail its attempt to balance the oil market, it may also want to cast an eye north, the Financial Times reported.

"For example, tighter monetary policy is a cyclical headwind for oil, while a secular demand rotation into liquid petroleum gases and out of gasoline/diesel will remove support from WTI crude oil prices".

Furthermore, in a trading statement released last week, Tullow raised its profit guidance for the first six months of the year - which is a positive development. The increased production in the USA and an increase in the numbers of operating rigs remains the biggest of concerns for the oil bulls. Previously, the shale producers were forced to sell their products only to USA refiners, who can then sell only refined oil products to the world market.

However, there's no denying that the USA still remains awash with excess oil that is derailing bulk of the OPEC-led cuts aimed at rebalancing the market. Oil prices failed to stabilize this year despite the production cuts announced by OPEC alongside non-OPEC members such as Russian Federation last November 2016.

US oil traders are hoping the sweltering days of July are also hot ones for demand, believing the new month is the last best opportunity this year to see the overhang of inventories finally subside. The nearest contract at $55 or higher is June 2024 at $55.07.

OPEC and Russia's supply quotas were offset by robust production from the U.S. According to OPEC's calculations, Venezuela had average production of 1.972 million barrels per day in March. The investment bank cited higher-than-expected production from Nigeria, Libya and a swift rebound in US shale output.


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