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Could tailwinds trio push Oil prices higher in July?

Rising geopolitical tensions appear to be doing some of the legwork for OPEC+ in pushing Oil prices higher, amid expectations that global supplies could be constrained further. At the time of writing, Crude oil prices in New York are trading closer to the psychological $60/bbl mark, as it continues its recovery from a bear market, when WTI fell by more than 20 percent between late-April and early-June. Meanwhile, Brent futures are pushing back towards $70/bbl at the time of writing, still some 11 percent below its April high of $74.04/bbl.

The recent recovery in Oil prices is set to frame the OPEC+ gathering in Vienna on the first two days of July. Oil producers face the delicate task of rebalancing the global markets, as they try to unwind oversupplied conditions, given fears of slowing global growth from heightened US-China trade tensions.

The OPEC+ alliance finds themselves playing catch-up with plummeting demand for Oil. All three major forecasters, namely the International Energy Agency (IEA), the US Energy Information Administration (EIA), and the Organisation of Petroleum Exporting Countries (OPEC), have lowered their respective outlooks for global demand. On average, the world is expected to consume 1.2 million more barrels of Oil per day (bpd) in 2019, which is about 14 percent less compared to January’s year-on-year demand growth forecasts.

On the supply side, the EIA projects US shale production hitting a new production record of 8.52 million bpd in July. Record US output is eroding the support for Oil prices, while offsetting efforts to stabilize global markets, with OPEC producers lowering its output to below 30 million bpd in May.

Given such supply-demand dynamics, OPEC+ producers appear to have little choice but to extend its supply cuts through the rest of 2019, hoping to remove about 500,000 barrels a day from global markets between July and December.

However, the mandate to rebalance global Oil markets appears to have been undermined by a seemingly fraying leadership within the OPEC+ alliance. The fact that the upcoming meeting in Vienna has been pushed back to July 1, as opposed to the originally scheduled June 25 start date, suggests that a tussle is playing out when it comes to the decision-making process. Beyond just the power to rearrange scheduled meeting dates, influential members also are bound to have a major say on which Oil price range would be deemed acceptable.

On the supply-side of the equation, the rising geopolitical tensions in the Middle East, coupled with new US sanctions on Oil producers, could further constrain global supplies. On the other hand, US-led trade tensions have been pulling the brakes on global growth and eroding demand for Oil.

The base case for markets at present is for OPEC+ producers to stick with lowered output levels for the remainder of 2019 which should be supportive of Oil prices. However, in a best-case scenario for Oil prices, July could be the month when Oil is restored close to its 2019 high, provided all the pieces fall in place: OPEC+ supply cuts are extended, geopolitical tensions intensify in the Middle East, and a US-China trade deal lifts market sentiment.

Should these three potential tailwinds materialize, perhaps then consumers who had planned a summer road trip will have to cut their drives short, given the prospects of higher prices at the pump next month.
Source: AME Info

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