U.S. West Texas Intermediate and international-benchmark Brent crude oil posted a mixed performance on Wednesday, highlighting the sensitivity of this market to just the slightly change in supply.
Crude oil was supported early Thursday by reports of plunging exports by OPEC-member Venezuela and the American Petroleum Institute’s weekly inventories report that showed a larger-than-expected drawdown.
According to Reuters data, Venezuela is nearly a month behind in shipping crude to customers from its main oil export port as chronic delays threaten to breach state-run PDVSA’s crude supply contracts if they are not quickly cleared.
Reuters went on to say that tankers waiting to load more than 24 million barrels of crude, almost as much as PDVSA shipped in April, are sitting off the country’s main oil port. The backlog is so severe, PDVSA has told some customers it may declare force majeure, allowing it to temporarily halt contracts, if they do not accept new delivery terms.
Later in the session, prices dropped sharply from intraday highs after the U.S. Energy Information Administration reported another rise in U.S. production. The EIA said crude oil output hit another record last week at 10.8 million barrels per day (bpd).
U.S. crude inventories also rose, gaining 2.1 million barrels in the week to June 1, to 436.6 million barrels, according to EIA data.
WTI crude oil is sitting at a key level on the charts. Trader reaction to this area will either fuel the start of a meaningful short-covering rally, or another steep plunge in prices.
The chart pattern indicates that investors are waiting for OPEC to make the next call. If OPEC decides to make up for the entire Venezuelan shortfall plus any shortages it expects from sanctions against Iran then oil prices are likely to retreat further.
If OPEC decides not to make up most of the shortfall in Venezuela, or if the troubled nation decides to declare force majeure then we could see a spike to the upside in prices.
In other news, OPEC-member Iraq said Wednesday that a production increase was not on the table as the market was stable and prices good. This indicates that the 1 million bpd increase that the market has been pricing in for two weeks, may not take place after all.
OPEC is set to meet at its headquarters in Vienna, together with top producer but non-OPEC member Russia, on June 22 to discuss production policy.