July Crude Oil futures have drifted sideways-to-lower since its May 6 top at $63.62 despite three consecutive weekly drawdowns in inventory. Drawdowns have even taken place four out of the last ten weeks. Furthermore, the number of producing U.S. rigs has also declined for several months although lately at a slower pace than earlier in the year.
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Inventory drawdowns and rig reductions, on paper are bullish indicators and should have been supportive to prices. Instead, July Crude Oil futures have weakened since May 6, dropping from $63.62 to $57.93 in nine sessions. A potentially bearish closing price reversal top has also been exerting a negative influence on the market, setting up the possibility of a correction into $55.54 to $53.63.
Although U.S. producers have been making an effort to slow down production, demand has been too sluggish to put a serious dent in total inventories which are still at an 80-year high at 482.2 million barrels. On top of this, OPEC appears ready to defend its market share of the global oil market by ramping up production. This assumption came from a May 13 report by the International Energy Agency.
In the report, the IEA stated that Saudi Arabia boosted output to the highest level in at least three decades. Even with the U.S. reducing production, the increased production by OPEC, and especially Saudi Arabia, is likely lessening hopes that supply will contract enough to maintain the current rally.