Oil prices fell 3% yesterday to the close price of $59.92/barrel, amid concern over the decision of OPEC to maintain output.
Today (5th June) OPEC’s annual meeting is held in Vienna, oil prices are directly affected by the result of the meeting. Basing on oil ministers’ statement, many investors expect that OPEC will maintain production of 30 million barrels/day (bpd), or even higher.
On the same day, market is expecting important economic reports from the US, including: non-farm payrolls, unemployment rate and average wages.
Oil price is likely to drop because of the following reasons:
- OPEC’s meeting result will put downward pressure on oil price.
- Iran, Iraq and Libya this week announced it would provide millions of barrel to the market. Saudi Arabia is also ready to push up output to the record high level in the past three decades. The drillers are still trying to increase oil output by cutting costs and focusing on the most productive rigs.
- Positive employment data may push the dollar higher and hurt oil price.
However, oil price may increase due to the following reasons:
- Increasing demand from China, other Asian countries: According to Saudi Arabia’s Oil Minister, oil demand in Asia will continue to grow at the fastest pace. Mr. Naimi expressed confidence in the oil market, as supply and demand is heading to balance, which means price are recovering slowly.
- Famous oil trader, Andy Hall, expected that US crude would rise above $65/barrel. Mr Hall said: “Although the number of US rigs decreased, but oil production has not yet significantly reduced, but will soon drop.” According to Mr. Hall, the oil rig are operting more efficient, but it can not offset the 60% decline in the number of US rigs.
Forecasting: Oil prices may drop to $56.50/barrel.