Fragile balance on the Oil market put to the test – Commerzbank

With the start of the ceasefire, Oil prices have stabilised at the level they were at before the escalation of the Middle East conflict. The weekly US inventory report had prevented a further price slide because the US Oil market - at least for the time being - is still rather tight. Next week there are two upcoming events that could be a litmus test for the still fragile balance on the Oil market, Commerzbank's commodity analyst Barbara Lambrecht notes.

Further expansion of Oil supply threatens to become a litmus test

"Firstly, the nuclear negotiations between the US and Iran are likely to resume. The direction the US plans to take is still unclear: on the one hand, US President Trump has indicated that Iran needs its Oil revenues in order to rebuild the country. With this in mind, he conceded to China to buy Oil from Iran. On the other hand, he wants to keep up the "maximum pressure" strategy on Iran."

"Secondly, the next decision by the eight OPEC+ countries, which have voluntarily cut their production, is imminent. We expect them to announce that they will increase their daily production in August by a good 400 thousand barrels for the fourth month in a row. This is because Kazakhstan's Oil production is likely to have significantly exceeded the agreed quota once again in June, and the lack of production discipline on the part of individual countries is seen as a key reason why heavyweight Saudi Arabia in particular is no longer willing to shoulder the burden of a production cut (alone). However, as a further increase is probably the consensus on the market, this is likely to weigh on Oil prices slightly at best."

"In addition, the results of the first survey-based estimates of OPEC production will be published in June. These will show how much OPEC+ has actually increased its production. According to the IEA, for example, production by the OPEC+ production cartel was actually lower in May than in April because the production increases by Saudi Arabia and the United Arab Emirates were offset by cuts elsewhere. In addition to the news on the supply side, sentiment indicators will put the focus on trends on the demand side: if sentiment in China brightens somewhat as hoped, this should support Oil prices, at least in the short term."