Oil Fundamental Analysis – Forecast for the Week of January 23, 2017
A slew of mixed news and optimism ahead of the January 21 -22 OPEC/non-OPEC meeting to discuss compliance with the plan to reduce output in Vienna helped hold crude oil futures in a narrow range last week, however, the markets were able to each eke out small gains.
U.S. March West Texas Intermediate Crude Oil finished the week at $53.22, up $0.07 or +0.13%. International March Brent Crude Oil closed at $55.49, up $0.04 or +0.07%.
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The week was filled with a number of reports that collectively had a balancing effect on the market.
Bullish news included comments from the International Energy Agency, the U.S. Energy Information Administration and OPEC.
The International Energy Agency said oil markets had been tightening even before cuts agreed by OPEC and other non-member producers took effect. However, the IEA also added that while it was “far too soon” to gauge OPEC/non-OPEC compliance with promised cuts, commercial oil inventories in the developed world fell for a fourth consecutive month in November, with another decline projected for December.
Meanwhile, the EIA said it raised its 2016 demand growth estimate, and said the data indicated that rising demand was slowly tightening global oil markets.
The central theme on the bearish side of the equation all week was worries over increased production. The U.S. Energy Information Administration (EIA) weekly inventories report showed crude inventories rose unexpectedly last week as refineries cut demand.
The EIA report showed U.S. commercial crude inventories rose by 2.3 million barrels in the week-ending January 13. Traders were looking for a 100,000 to 342,000-barrel decline. Total crude oil inventory now stands at 485.5 million barrels.
Additionally, the head of the IEA, Fatih Birol, may have contributed to some of the weakness when he said he expected U.S. shale oil output to rebound by as much as 500,000 barrels per day over the course of 2017, which would be a new record.
The U.S. Dollar posted a two-sided trade last week before settling slightly lower. At times this underpinned crude oil and at other times it capped the rallies.
Forecast
March crude oil futures have traded sideways for several weeks while straddling $54.25. Trader reaction to this level will set the tone for the week. The close below this level means the week-ended with a downside bias. If it continues then we could see a move into the next support at $50.69. A close over this price will shift the bias to up with $56.24 the next target.
The catalysts behind the price action this week is likely to be the basic supply/demand data from the EIA, however, investors are also likely to react to the outcome of the OPEC/non-OPEC meeting if it reveals important information about compliance with the output agreement. If it shows a high percentage of compliance then prices could be underpinned. If it shows low compliance then look for downside pressure this week.