For the upcoming week, Stratas Advisors expects the price of Brent crude oil will continue to be under pressure and will test the support level of $45 per barrel (bbl). The firm expects that some upward support will be provided in the second half of the week from a significant drawdown in U.S. crude inventories. It also expects that the Brent-WTI differential will trade between 40 cents and 85 cents with respect to the September contract.

Because there are geopolitical developments that are creating both supply and demand risks, Stratas maintains the view that geopolitics will be a neutral factor with respect to the price of Brent crude for another week.

The firm’s geopolitical team continues to assess development affecting the major oil-producing countries—and Libya is obviously an oil-producing country that has been affected by geopolitics. On July 3, Libya's still-divided political leaders agreed to reunify the National Oil Co., but the six-month-old Government of National Accord (GNA) has yet to achieve actual consensus among the country's disparate political and military factions despite assertive mediation efforts by the U.N. Security Council and international recognition of the GNA.

Meanwhile, the U.S. dollar started the week at $1.113 with respect to the euro and strengthened throughout the week to close at $1.105. Since the Brexit vote, currency traders have increased their net long positions of the U.S. dollar. The euro is feeling downward pressure from the aftermath of the Brexit vote, including the IMF reducing its GDP forecast for the EU (from 1.7% to 1.6% in 2016 and from 1.7% to 1.4% in 2017), while also issuing a warning that the economic outlook could worsen because of ongoing uncertainty about the impact from the separation of the U.K. from the EU.

Consequently, Stratas maintains its view that the U.S. dollar will be a negative factor with respect to the price of Brent crude.

In addition, Stratas Advisors is shifting its view that supply will be a neutral factor to a negative factor with respect to the price of Brent crude.

A recent assessment by our North American Shale team of the Scoop and Stack regions of the Anadarko Basin is an example of an analysis that underpins expectations. The assessment indicates that despite the downturn in commodity prices, operators and other prospective investors have demonstrated a notable interest in the Scoop and Stack regions of the Anadarko basin in Oklahoma. The Stack(Sooner Trend Anadarko Canadian Kingfisher), with an over-pressured hot spot, has illustrated some particularly eye-popping results, boasting some of the highest oil well 30-day IP rates in the country. The assessment also indicates that operators are able to benefit from lower service costs per well. In general, low commodity prices have pushed operators to emphasize their drilled but uncompleted (DUC) inventories. However, many operators within the Midcontinent region are able to remain focused on drilling new wells, maximizing the potential recovery. We estimate that the half-cycle drilling and completion costs are currently averaging between $6 and $7 million per well. Operators in the Stack have been able to capitalize on decreasing service sector costs and better production results, posting NPV-10 estimates at or below $50/bbl.

For more on analysis of this week’s oil prices, visit StratasAdvisors.com/WAOP.