Traders are concerned that the market will become oversupplied if OPEC increases output

Recap: Oil prices fell 2 percent on Thursday on reports that OPEC may raise output from July if Venezuelan and Iranian supplies fall further and prices keep rallying. May WTI fell $1.30 to a session low of $63.31 a barrel in early afternoon trading, while June Brent slipped $1.15 to $70.58 a barrel. Traders, who are already grappling with rising U.S. crude oil production amid surging U.S. inventories, are becoming increasingly concerned that this market can become oversupplied should OPEC increase output. Thursday’s selloff follows a rise that took prices to 5 month highs on Tuesday. WTI at Midland traded at the biggest discount to futures in almost four months after Phillips 66 closed a unit for maintenance at its Borger, Texas refinery, adding to a backlog of barrels as production climbs. Losses were pared, with May WTI settling at $63.58 a barrel, down $1.03, or 1.59% and June Brent settling at $70.83 a barrel, down 90 cents, or 1.25%. May RBOB fell by 1.9% to $2.031 a gallon after settling Wednesday at its highest since early October, while May heating oil shed 1% to $2.067 a gallon.

Technical Analysis:  WTI is headed for its sixth straight week of gains as it continues to hold above $61.51, the 50% retracement set by $79.43, the high of October and $43.59, the low set in December. Moving oscillators, which are set high in over bought territory have crossed to the downside. Based on this, we would look for May WTI to take a stab at $62.86, the current 10-day moving average. Below this level, additional support is set at $61.80 and $61.18. Resistance is set at $65.70.

Fundamental News:  The IEA reported in its monthly report that global oil supply fell in March as US sanctions and power outages pushed Venezuela’s crude production to a long-term low of 870,000 bpd.  It said the blackouts are an additional challenge for Venezuela’s oil sector, already set back by economic collapse, corruption, mismanagement and US sanctions.  The IEA stated that Venezuela’s output decline of 270,000 bpd was the country’s second largest month-on-month decline and put the country’s production at 600,000 bpd less than a year earlier.  The IEA said the voluntary cuts of the OPEC and non-OPEC output cut agreement and reduced output by Venezuela caused OPEC production to fall by 550,000 bpd in March.  The IEA maintained its forecast of growth in global oil demand for 2019 at 1.4 million bpd.  Meanwhile, oil stocks in industrialized countries fell in February by 21.7 million barrels but remained above their five-year average.  Global refining throughput fell by 2.5 million bpd in March due to unplanned outages, especially in the US. 

Sources stated that OPEC may raise its output starting in July if Venezuelan and Iranian crude production falls further and prices continue to rally because extending production cuts with Russia and other allies could overtighten the market.  A source said the market outlook remains unclear and much depends on how far the US tightens the screws on Iran and Venezuela before OPEC’s June meeting.  A second source raised the prospect of amending the deal in June while still extending the agreement.  OPEC is scheduled to meet on June 25-26 to decide whether to extend the OPEC and non-OPEC output agreement. 

Moody’s said that energy trade shift supports the US economy but is negative for some Latin American exporters.  It said the US will import less oil from Latin America in the next three to five years.  It added that while also confronting a shift in US production, some Latin American oil producers face output challenges rooted in domestic developments. 

US Venezuela envoy, Elliot Abrams, said the US will discuss Spanish oil company Repsol’s activity in Venezuela in the next few days.  He said further sanctions by Europe against Venezuelan President Nicolas Maduro’s government had been discussed during his visit to Portugal and Spain but added that any decision needed to be made by the European Union. 

Early Market Call – as of 8:45 AM EDT

WTI – May $64.51, up 93 cents

RBOB – May $2.0387, up 84 points

HO – May $2.0848, up 1.76 cents

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