Oil Price Forecast: Higher as US Inventories Tighten, Saudi Minister Warns Speculators

Highlights

• U.S. inventories and fuel supplies tightening.
• Saudi energy minister warns speculators, raising the prospect of further OPEC+ output cuts.
• Market sentiment buoyed by the warning, but some remain cautious.

Overview

Oil prices are higher on Wednesday as data showed U.S. inventories and fuel supplies tightening, and as the Saudi energy minister warned speculators, raising the prospect of further OPEC+ output cuts.

At 13:38 GMT, WTI Oil trades at $74.34, up $0.54 or +0.73%. The United States Oil Fund ETF (USO) stands at $65.93, up $1.06 or +1.63%.

Surge in Oil Prices Amid Decreasing U.S. Inventories

Industry data indicating a significant decrease in U.S. crude oil and fuel inventories played a pivotal role in the surge of oil prices. According to sources in the market citing figures from the American Petroleum Institute (API), crude inventories experienced a notable decline of approximately 6.8 million barrels during the previous week. Additionally, gasoline inventories witnessed a drop of about 6.4 million barrels. If the upcoming data from the Energy Information Administration (EIA), scheduled to be released on Wednesday, confirms these statistics, it would signify the third consecutive week of declining U.S. gasoline inventories. Furthermore, these levels would be the lowest observed before the Memorial Day holiday since 2014. The Memorial Day holiday, falling on May 29 this year, traditionally marks the commencement of peak summer travel and heightened fuel demand in the United States.

Saudi Energy Minister Warns Short Sellers of Consequences

Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, issued a stern warning to short sellers. He cautioned them to brace themselves for potential consequences. Prior to an upcoming OPEC+ meeting to discuss future oil policies, Prince Abdulaziz bin Salman stated that he would inflict additional hardships on short sellers. Speaking at the Qatar Economic Forum organized by Bloomberg, he acknowledged the presence of speculators in the market and reiterated his advice that they should be prepared for the possibility of facing repercussions. Referring to their previous losses in April, he hinted at the potential for future actions without explicitly revealing his strategy, stating, “I don’t have to show my cards; I’m not a poker player… but I would just tell them to watch out.”

Bearish Short Positions Raise Likelihood of OPEC+ Production Cuts

Analysts from Standard Chartered bank noted in a recent report that short speculative positions have reached bearish levels similar to those seen at the onset of the pandemic in 2020. They suggested that this increase in short positions significantly raises the likelihood of further production cuts during the OPEC+ meeting. Consequently, some investors interpreted this as a signal that OPEC and its allies, including Russia, might consider implementing additional output cuts at their gathering on June 4.

Saudi Warning Impacts Oil Market

The warning issued by Saudi Arabia’s Energy Minister has had an impact on the oil market, with oil prices currently trading higher. The prospect of potential consequences for short sellers has buoyed market sentiment. However, based on past experiences, some traders may be tempted to view the warning as a bluff. However, they are likely to still approach the situation cautiously.

Technical Analysis

WTI Oil is trading on the strong side of $72.57 (S1) and the intraday momentum is strong. This has put the market on a path toward the next upside target at $78.02 (PIVOT).

A sustained move under $72.57 (S1) will indicate that sellers have returned. If this creates enough downside momentum then look for the selling to possibly extend into $68.49 (S2) over the near-term.

Resistance & Support Levels