Crude oil futures for delivery in July 15 [CLN5:NYM] surged 4.64% on Friday to an intra-day high of U.S. $60.70 per barrel on heavy volume, and closed at U.S. $60.41 per barrel, after a report of a suicide bomb at a Shiite mosque in Saudi Arabia’s city of Dammam, for which the Islamic State of Iraq and Syria (ISIS) group claimed responsibility. The attack, which killed three, took place just a few kilometers from both the headquarters of Aramco, the powerful Saudi state oil company, and the crucial Ras Tanura oil terminal and refinery. 

An escalation of terrorist attacks or war conflicts in Saudi Arabia, the top global oil producer which pumped 10.3 million barrels of per day (bpd) in April, could have a short-term impact on the global supply of crude oil.

Forecasting crude oil prices has been difficult as the crude oil inventories seem to be falling but production is jumping. The U.S. Energy Information Administration (EIA) weekly petroleum status report, released on Thursday, showed that crude oil inventories had a draw of 2.8 million barrels, to a total inventory of 479.4 million barrels. Analysts had expected a draw of about 1.8 million barrels. 

The EIA also said the monthly U.S. crude production in March was 9.5 million bpd, the highest level since 1972. The production data for February and January were also revised higher. The EIA now said that production for both months were roughly 9.4 million bpd, instead of the initial estimates of 9.2 million bpd for January and 9.3 million bpd for February.

The weekly report by Baker Hughes [NYSE:BHI], one of the world's largest oilfield services companies, on Friday showed that the U.S. active oil drilling rig count fell for the 25th straight week, another 13 rigs to 646 rigs in the week ending May 29, down almost 60% from the record highs of 1,609 rigs set in October 2014.

The Organization of the Petroleum Exporting Countries (OPEC) members will meet in Vienna on June 5 to discuss production levels and market strategy. OPEC's data compiled from external sources showed that the OPEC daily production increased over 1.4 million bpd over the past year to 31.3 million bpd in April, while the Saudi Arabian output alone jumped to 10.3 million bpd. Iraq, OPEC’s second-largest producer, plans to increase production and export a record 3.75 million bpd next month.

Although analysts don’t expect OPEC to cut oil production to shore up prices at the meeting, on Friday, Russian Energy Minister Alexander Novak called on oil producers around the world not to boost output any further. Russia has pushed its own production up by 200,000 bpd over the past year, hitting an all-time high of more than 10.7 million bpd in April.

There is a big warning sign for the oil bulls. According to the Baltic Exchange in London, the daily rates for supertankers, which can haul over 75,000 metric tons of crude, reached U.S. $83,412 on May 20, from U.S. $52,987 on May 6. Increased production in Saudi Arabia and Iraq, as well as relatively low oil prices, encourages major buyers like China to hoard crude, which drives a spike in demand for the ships. According to Chinese customs data in April, China imported a record 7.4 million bpd, topping the U.S. imports of 7.2 million bpd. 

As of May 26, there are 512,645 long positions of non-commercial contracts of light sweet crude oil futures, traded by large speculators, traders and hedge funds, a decrease of about 4,183 long positions week-on-week, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. This is compared to about 433,893 short positions, a decrease of about 11,955 short positions week-on-week where light sweet crude oil contracts are traded in units of 1,000 barrels. 

From our technical viewpoint, WTI crude oil is now trading near the technical resistance level of U.S. $60 per barrel after retesting the trendline resistance at U.S. $42.41 per barrel in mid-March. As the hedge funds are piling on crude oil bets, crude oil may break out and test the key technical resistance of U.S. $62.84 per barrel, or the 62.8% Fibonacci retracement level, based upon the 16-year chart. 

It should be pointed out that a bullish cup chart pattern has also emerged, meaning the crude oil price could move upward to the US. $70 per barrel if the U.S. $62.84 per barrel technical resistance is broken. Nonetheless, in the event of a bearish wedge breakdown, the crude oil price could fall back to retest the U.S. $45 per barrel level, the base of the bearish wedge.