Oil Price Prediction – Oil Rebounds As Domestic Production Declines

Key Insights

• Crude inventories exceeded analyst expectations. 
• Domestic oil production decreased from 12.1 million to 12 million.
• Traders will stay focused on recession risks and keep an eye on the U.S. dollar dynamics in the upcoming trading sessions. 

A Surprising Decline Of Domestic Oil Production Provides Support To Oil Markets

WTI oil moved higher after the release of the EIA Weekly Petroleum Status Report, which indicated that crude inventories increased by 3.3 million barrels from the previous week.

Analysts expected that crude inventories would decrease by 0.15 million barrels. Total motor gasoline inventories grew by 5.8 million barrels, while distillate fuel inventories increased by 2.7 million barrels.

The report could have been bearish, but domestic oil production declined from 12.1 million bpd to 12 million bpd. Domestic producers have quickly reacted to the recent downside move in the oil markets. This news is bullish for oil markets as it shows that American companies are not ready to produce more oil if the price hovers around the $100 level.

Dollar’s Pullback Serves As An Additional Catalyst

Several catalysts have been playing against bulls in the oil markets in recent trading sessions. Traders are worried that a potential global recession will hurt demand for oil. In addition, the situation with coronavirus remains uncertain. China is trying to contain outbreaks, which can limit the country’s growth in July.

At the same time, oil markets remain tight, and it remains to be seen whether global oil production can increase at a robust pace due to chronic underinvestment in previous years. As a result, WTI oil gets material support below the $100 level.

There is another factor that can serve as a bullish catalyst for oil and other commodities in the upcoming trading sessions. The U.S. Dollar Index has started to pull back after the release of the disappointing inflation data. It looks that traders decided to “sell the news”, and this pullback can be significant. Weaker dollar is bullish for dollar-denominated oil and can push it back above the $100 level.

For a look at all of today’s economic events, check out our economic calendar.