Oil Fundamental Analysis – for the week of August 22, 2016 -Forecast

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Published: Aug 20, 2016, 07:16 UTC

Crude Oil soared this week closing at 48.45 with a gain of nearly 9% and although signals indicate that oil prices could climb this week supply and demand

Oil Fundamental Analysis – for the week of August 22, 2016 -Forecast

Crude Oil soared this week closing at 48.45 with a gain of nearly 9% and although signals indicate that oil prices could climb this week supply and demand are indicating that the commodity is overpriced. Oil is up 30% on a year to date basis and 18% on an annual projection. All this is on the hope of production cuts at the late September meeting. Traders are reacting only to new headlines as data showed an increase in production by the Saudi’s. Iran and Iraq are not ready to cut production and are increasing output steadily.

Saudi Arabia may finally be willing to work with producer nations to put a floor under oil prices after allowing market forces to determine the cost of a barrel of crude since November 2014, according to Jan Stuart, global energy economist at Credit Suisse. When the cost curve flattens, the gap between the current and future prices of crude futures is narrowing. In the current market, which is in contango, that means forward prices are coming down relative to the current price, signaling that oversupply is waning.

The current rally is likely due more to oil bears covering their short positions, than to bulls going long, Stuart said.

CNBC reported that oil prices surged dramatically in the last two weeks thanks to OPEC freeze talk, but there’s little expectation the cartel will act, especially now that crude is trading 24 percent higher just on hot air.

The bullish argument is that some producers, like Iraq and Iran, are getting close to the limit of what they can produce. Libya is expected to bring some oil back on line, while Nigeria still has about 800,000 barrels offline. Venezuela could also see production decline. That leaves the U.S. shale producers as one wild card.

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Week of August 22-25, 2016

Date	Country	Name	Volatility	Previous
8/23/2016	GBP	Inflation Report	3
8/24/2016	EUR	GDP w.d.a (YoY)	3	1.8
8/24/2016	EUR	GBP s.a (QoQ)	3	0.4
8/24/2016	EUR	GDP n.s.a (YoY)	3	3.1