Home Commodities The Commodities Feed: Rangebound trading for oil | articles

The Commodities Feed: Rangebound trading for oil | articles


Oil prices edged higher yesterday. Brent settled 0.69% higher on the day. However, prices continue to trade in a fairly narrow range, a trend seen since the start of the month. The lack of price direction more recently is no surprise given the uncertainty over what OPEC+ members may do with their additional voluntary supply cuts. Recent comments from Iraq’s oil minister only add to this uncertainty. In addition, Brent has been facing some technical resistance along the 200-day moving average.

The EIA released its latest Drilling Productivity Report yesterday, which showed that drillers increased their drilled but uncompleted well (DUCs) inventory for the second consecutive month in April. The number of DUCs increased by six in April to 4,510. This is the first back-to-back increase in DUC inventory since late 2022. The increase in inventory is driven by lower completion rates, rather than a significant increase in drilling. The EIA also forecasts the US shale oil production will grow by 17k b/d month-on-month to 9.85m b/d in June. The Permian is expected to drive almost all of this increase. US shale gas output is expected to fall 330mcf/day to 99.2bcf/day. The low gas price environment has weighed on drilling activity, which in turn will weigh on natural gas output.

European natural gas prices have come under renewed pressure. Front-month TTF futures broke below EUR30/MWh, after settling 1.5% lower yesterday. Fundamentals remain bearish for the European market given the comfortable storage levels and the expectation that the region will hit full storage ahead of next winter. Storage is 64% full at the moment. The comfortable storage situation is at odds with speculative flows into the market. Speculators have increased their net long to the highest since February 2022. The buildup of a large speculative long in a bearish market increases the risk of an aggressive pullback in prices.

OPEC will release its latest monthly market report today. The release will include OPEC production numbers for April and the group’s latest outlook for the oil market. This will be important in the lead-up to the Joint Ministerial Monitoring Committee meeting in early June. Last month, OPEC forecasted global oil demand to grow by 2.25m b/d in 2024 and 1.85m b/d in 2025. As a result, this left demand for OPEC supply in 2024 at 28.5m b/d and 29m b/d in 2025. These numbers are well above the 26.6m b/d that OPEC produced in March. However, OPEC does have much more aggressive demand growth forecasts than the IEA and the EIA.

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