Oil Fundamental Forecast – February 24, 2017
Crude oil futures closed higher on Thursday as investors reacted to a government report that showed stockpiles rose less than expected.
U.S. April West Texas Intermediate crude oil futures closed at $54.45, up $0.86 or +1.60%. International April Brent crude oil finished the session at $56.58, up $0.74 or +1.33%.
Your capital is at risk
According to the U.S. Energy Information Administration, crude inventories rose by 564,000 barrels in the week to February 17. This represented the seventh consecutive week of additions. However, the number was well below analysts’ expectations for an increase of 3.5 million barrels.
Crude oil imports, fell 1.4 million barrels per day, while exports rose 185 bpd to a record 1.2 million bpd.
Crude oil stocks at the Cushing, Oklahoma, futures delivery hub fell sharply by 1.5 million barrels.
The EIA report also showed another decline in refinery crude runs, falling by 187,000 bpd last week. Utilization rates fell 1.1 percentage points to 84.3 percent of total refining capacity.
Gasoline stocks fell 2.6 million barrels, compared with analysts’ expectations for an 888,888-barrel drop. Distillate stockpiles, fell 4.9 million barrels, versus forecasts for a 483,000-barrel draw, the EIA data showed.
Forecast
Crude oil is trading higher for the week so we could continue to see further upside momentum on Friday. Technical factors, however, could determine whether the market closes higher or lower since the market is currently testing a major pivot price at $54.43.
A sustained move over $54.39 today will indicate the buying is getting stronger. This could create the upside momentum needed to challenge the next resistance target area at $54.99, $55.03 and $55.16. The trigger point for a huge breakout rally is $55.16.
A failure to overcome and sustain a rally over $54.39 will indicate the presence of sellers. This may even lead to an intraday correction back to $53.75. All hope for a strong rally will be erased following a move through $53.12.
The fundamentals remain mixed. OPEC member and non-members continue to comply with the cartel’s plan to curb output, by U.S. production continues to rise, although this week at a much slower rate. The surge in exports indicates that U.S. producers are moving into areas dropped by OPEC members. Propping up this market is the tremendous number of long positions held by hedge funds.
I have to conclude that oil prices will remain firm until the hedge and commodity funds grow impatient with the lack of movement and decide to begin liquidating positions.