Crude oil futures rebounded slightly Wednesday but hovered near a four-month low as a decision by OPEC+ to increase production later this year continued to weigh on the market.
U.S. crude oil and global benchmark Brent are down more than 4% this week after eight OPEC+ members agreed Sunday to gradually phase out 2.2 million barrels per day in production cuts.
The sell-off is overdone, said Warren Patterson, head of commodities strategy at ING. OPEC+ won’t start increasing production until October, and the global oil balance sheet will tighten beforehand, Patterson said.
Here are today’s energy prices:
- West Texas Intermediate July contract: $73.64 a barrel, up 39 cents of 0.53%. Year to date, U.S. crude oil is up 2.7%.
- Brent August contract: $77.93 a barrel, up 41 cents, or 0.53%. Year to date, the global benchmark is up 1%.
- RBOB Gasoline July contract: $2.33 per gallon, down 0.65%. Year to date, gasoline futures are up 11%.
- Natural Gas July contract: $2.63 per thousand cubic feet, up 1.73%. Year to date, natural gas is up 4.9%.
“The technicals also suggest that the oil market is entering oversold territory,” Patterson told clients in a research note on Wednesday.
U.S. crude oil “has a history of bouncing from oversold territory rather quickly versus camping out in the basement for days on end,” Bob Yawger, executive director of energy futures at Mizuho Securities, told clients in a note Tuesday.
Yawger said U.S. oil could rally back to a range of $76.15 to $80.62 per barrel in the coming days as speculators cover short positions, before the market “reverses course and drills lower again.”
Helima Croft, head of global commodity strategy at RBC Capital Markets, emphasized that the OPEC+ plan to increase oil supply is not binding. Saudi Arabia will hit “hit the kill switch” on a fourth-quarter production increase if the market is oversupplied or sentiment is poor come September, Croft said.
“The intention has always been to slow roll the barrels back in and not to send the market into a tailspin with a supply surge,” Croft told clients in a research note Tuesday. “Since Saudi Arabia will be providing the lion’s share of the new barrels, it will not be bound by Sunday’s supply schedule if it is not in their national interest,” she said.