Crude oil prices rose by almost 20 percent in the month of August on speculation over the OPEC meeting where the producers might decide on the production freeze. OPEC meeting in Algeria is likely to held on 26-28th September.
Oil prices rebounded mainly on the news over production cut in the upcoming meeting and not driven by improving fundamental. Therefore this rally in crude oil prices is unlikely to sustain. Even if OPEC producer freezes the oil production, oil prices are unlikely to move higher as the production freeze would keep the oil output at record high levels.
Major producers like Saudi Arabia, Iraq, and Russia are currently producing oil at record high level and Iran which is close to producing oil at pre-sanction levels. Production disruption in Iraq, Nigeria and Libya are showing signs of easing. Iraq is set to resume exports after an agreement was reached to resume exports through a pipeline controlled by Kurdistan Government. In July, Iraq’s crude exports hit 3.71 mbpd and produced around 4.33 mbpd, a sharp rise of 80,000 bpd from the previous month. Nigeria’s crude oil output has been hit due to militant’s attacks, however the militants have agreed to negotiate the terms with the government and call for the ceasefire.
US oil rigs are on the rise for the consecutive eight weeks which implies the US oil production is set to remain on the stable. For the week, investors should be looking for the API inventories followed by the official data from US EIA. Also oil prices will be volatile due to the dollar movement on ahead of Fed Yellen speech and Jackson Hole meet.
CommTathya expects any rally in crude oil prices is proved to be unsustainable on signs of rising supply from Iraq, Nigeria in the short term.