Oil prices ended up taking a nosedive last week as positive market sentiments emerged.
Specifically, the G20 meeting saw a number of major developments, including the continuation of Chinese-American trade talks, leading to a surge in stock prices and a decline in gold as well as oil. U.S. oil prices have reported a gain this week after last weeks tumble as the markets await a number of key reports.
Since last Tuesday, oil prices fell around 5 percent. However, Monday saw West Texas Intermediate futures for August delivery up 0.3 percent to $57.66 per barrel, while the global benchmark Brent crude fell by 0.2 percent to $64.11 per barrel.
The main catalyst for these moves is an upcoming short-term energy outlook report from the U.S. Energy Information Administration which will come out on Tuesday. Additionally, OPEC’s monthly report is also scheduled to come out on Thursday, while the International Energy Agency’s own monthly oil report will come out later this week on Friday.
Overall, traders are keeping a close eye out on these reports, which will likely dictate which direction oil prices will move in the coming weeks bar any other surprising geopolitical developments, which in all likelihood will likely happen.
“While we don’t look for major downward demand revisions from any of the sources, we do feel that oil demand growth estimates for this year will be seeing some bearish changes as this year progresses,” said analysts at Ritterbusch & Associates according to The Wall Street Journal. “Manufacturing data both in the U.S. and overseas is sending off increasing signals of a slowed economic growth path across most of the world.”
Although domestic crude production in the U.S. continues to reach new highs, with the EIA stating that output passed 12 million barrels per day for the first time ever back in April, the number of rigs drilling for oil has actually gone down last week, falling to 788 as opposed to the 888 seen in November 2018.
This decline in rigs hasn’t really hurt overall output, however, as this has more to do with the fact that shareholders are pressuring companies to spend less and maximize existing operations.
On the other side of the world, OPEC and its allies agreed last week to extend production cuts for a further nine months to help support prices against a weakening global demand, calling for participating countries to cut output by around 1.2 million barrels per day.
Sources have gone on to say that in a worst-case scenario, OPEC is drawing the line at a minimum $50 per barrel price, willing to extend further cuts if necessary to combat the downward effect that America’s growing output is exerting on the global oil market.
One wild-card in the oil markets that could push up prices would be on the off chance further oil tanks get attacked in the Strait of Hormuz. The attacks that took place back in June sent prices for oil surging despite America’s growing production, and further incidents could very well do the same. Regardless, markets will likely be rather quiet this week as traders anticipate the upcoming reports.