While developments in Venezuela and other producing countries will affect future supply, possible developments in other countries will affect future demand. As pointed out by Stratas Advisors’ Macroeconomic Team, signs of a weakening global economy were being see ?and Brexit just adds further risk to the global economy.

Consequently, we are maintaining our view that the U.S. dollar will be a negative factor with respect to the price of Brent crude.

At the beginning of last week Stratas expected that the U.S. dollar would remain relatively unchanged with respect to the Euro until the Brexit referendum. Furthermore, the firm believed that traders would react to the outcome—with the U.S. dollar weakening if the “In” vote wins and strengthening if the “Out” vote wins. However, we thought there would be a more significant reaction if the “Out” vote wins. In actuality, the U.S. dollar did remain relatively unchanged until Thursday, However, once the actual results came in, the U.S. dollar strengthened with respect to the euro. While the exit of the U.K. from the EU will provide further downward pressure on the euro, it is increasingly unlikely that the Federal Reserve will increase interest rates anytime soon.

Consequently, we are maintaining our view that the sentiment of oil traders is a negative factor with respect to the price of Brent crude.

The number of operating oil rigs in the US declined last week by seven, according to the last latest report from Baker Hughes. The decline of last week interrupts three straight weeks of increases.

Outside of the US, Canadian production remains below the level seen before the wildfires with output lagging by some 300,000 barrels per day (bbl/d).

Nigerian production continues to be affected by the sabotage caused by militants in the Niger Delta with production remaining well below the 2.2 million barrels that Nigeria was producing at the beginning of the year. The Nigerian government is making attempts to reach an agreement with the militants, but so far only limited progress has been made. Meanwhile, production of OPEC remains greater than 32 MMbbl/d with Iran and Iraq intent on increasing production.

One positive trend for the price of Brent crude is the decline in inventories of crude in Saudi Arabia.

For another week we are maintaining our view that supply will be a neutral factor with respect to the price of Brent crude. For the upcoming week we expect that the price of Brent crude oil will be under pressure after the roller coaster of last week, and will test the support level of $48. We are expecting that some upward support will be provided in the second half of the week from a drawdown in crude inventories in the U.S. We are also expecting that the Brent-WTI differential will trade between 20 cents and 80 cents with respect to the August contract.

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