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U.S. West Texas Intermediate and international-benchmark Brent crude oil settled lower on Tuesday as investors continued to assess the potential damage from increased production from Saudi Arabia and Russia.
July WTI crude oil settled at $66.73, down $1.15 or -1.72% and July Brent crude oil finished the session at $75.39, down $1.05 or -1.39%.
According to reports, Saudi Arabia and Russia have discussed raising OPEC and non-OPEC oil production by 1 million barrels per day (bpd) to counter potential supply shortfalls from Venezuela and Iran.
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Forecast
WTI futures are currently consolidating inside a technical 50% to 61.8% retracement zone at $67.32 to $66.00. Trader reaction to this zone is likely to determine the next move. A sustained move over $67.32 could trigger the start of a short-covering rally. Taking out $66.00 could fuel another steep sell-off.
At 0544 GMT, July WTI crude oil is trading at $66.50, down $0.23 or -0.36%.
July Brent crude oil is at $74.99, down $0.40 or -0.53%. It’s trading on the weak side of a retracement zone at $75.48 to $76.44. If buyers can’t drive the market through this zone to feed a short-covering rally then the selling could extend over the near-term into the last main bottom at $72.37.
It looks as if the heavy selling is over. The first move was in reaction to the news that 1 million bpd could be added to supply. However, with the OPEC meeting scheduled for June 22, traders will have plenty of opportunities to toss this number around.
Furthermore, it’s not like they are going to drop a million bpd on the market on that date either. Any increases are likely to be gradual. Additionally, the sanctions haven’t even started against Iran so there is plenty of time to work out the details of the OPEC plan.
So just like the rally after the sanctions were announced may have been “too much, too soon”, we could say the same for the sell-off.
I also think that the Saudi’s and Russians are going to take care of the shortfall from Venezuela first then move on to the loss from the Iran sanctions.
Once a value zone is found and the details come out, crude oil is likely to set inside a trading range. Remember that OPEC and the other major non-OPEC producers don’t want to drive prices too low. All they want to assure is that prices won’t rally too high to slow down economic growth and generate excessive inflation.