After four trading sessions of rising prices and the OPEC meeting just a few days, away crude oil is back on the defensive this morning. Further adding to the selling is a recovering U.S. dollar which was hit hard yesterday and is now in a light round of short covering. Crude prices are lower on the session by over 2% as the industry focuses on an OPEC meeting that is likely to see a continuation of their market share strategy and thus record high OPEC production levels.
Last night the API reported a build in both crude oil and gasoline inventories adding to the market concern that the perception trade may be pushed back as the reality of oil remains one of a global surplus. As I mentioned yesterday additional production is showing up around the globe.
Russia hit a production record in May, Saudi Arabia and OPEC in general are producing at a record high level. Iraq is increasing its record high production level with the launch of their Basrah heavy blend. In fact the Iraqi oil minister said that June production should increase by about 100,000 bpd according to Reuters. Bloomberg is reporting that Iran could boost it oil exports by about 400,000 bpd in the first months after signing a deal with the West. Finally on the potential demand side OECD cut its 2015 economic growth forecast to 3.1% from 3.7% from their last forecast in November.
All signs continue to suggest that the global oil situation will remain in an oversupplied mode through most of this year. This suggests to me that the perception rally that has been in play since the middle of March could possibly start to run out of its upside momentum as a reality check starts to trump the overly optimistic perception trade.