Oil Fundamental Forecast – February 5, 2016

Analysis and Recommendations:

Crude Oil gained 34 cents to trade at 32.62 while Brent Oil added 22 cents to 35.26 with no reason for any upward movement after US inventories came in much higher than expected.

US crude inventories climbed 7.8 million barrels in the week to Jan. 29 to 502.7 million barrels, compared with analyst expectations for an increase of 4.8 million barrels, as imports jumped and refiner’s trimmed throughput.

Crude oil futures extended gains from the previous session on Thursday as a weaker dollar and unconfirmed talk of producers potentially meeting to discuss output cuts lifted the market despite record U.S. stocks due to overproduction.

The slump in prices is the cause of the overall negative market mood, primarily relating to concerns about a significant deceleration of China’s economic growth. Nevertheless, our baseline scenario still does not envisage a collapse of oil prices. Global consumption should grow reasonably this year and, on the supply side of the market, production in non-OPEC countries – notably in the United States – should continue to be curbed. While the market as a whole will continue to be in a surplus, the surplus should decrease significantly compared to 2015, especially in the second half of 2016. Further developments in emerging countries pose the main demand risk. The quantity of oil to be supplied to the market by Iran poses the main supply risk.

The price of Brent crude fell to a thirteen-year low over the past two weeks, it then bounced back sharply. Behind this growth lie primarily the comments of Russia, which indicated the greater willingness of the main producers (Russia + OPEC) to agree on a coordinated reduction in oil production and exports. Although a potential agreement cannot be completely ruled out a priori, we still think such a probability remains low. Over the short-term horizon of several months, several factors will be working against such an agreement, led by the probable growth in exports of oil from Iran. These and other difficulties explain the reticence of key OPEC members, led by Saudi Arabia. In the light of recent events, however, it seems that the next regular OPEC meeting (2 June 2016) will be a closely monitored event. By then, further development in countries such as Venezuela will be watched closely as it poses upside risks for the oil price.

The medium-term outlook, we still anticipate that – from the perspective of the market balance – the greatest pressure to cut the oil price will occur in the second quarter, when we think it could hover around USD 30 / barrel. Nevertheless, the market surplus should be gradually reduced from the second half of the year because of both demand- and supply-side factors.

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

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Today’s economic releases:

 

Upcoming Economic Events that you should be monitoring:

Friday, February 5, 2016

Government Bond Auctions

Date Time and Country

Feb 04 11:50 France Holds bond auction

Feb 04 17:20 Sweden Details of I/L bond auction on Feb 11

Feb 08 16:20 Italy Details of bond auction

Feb 09 11:00 Netherlands Holds DSL auction

Feb 09 11:00 Austria Holds bond auction

Feb 09 11:30 Germany Holds I/L bond auction

Feb 09 11:30 UK 0.125% 2026 Gilt linker auction

Feb 09 n/a UK Details of Gilt auction on Feb 17

Feb 09 19:00 US Holds 3-year note auction

Feb 10 11:30 Germany Euro 5bn Mar 2018 Schatz

Feb 10 17:20 Sweden Details of bond auction on Feb 17

Feb 10 19:00 US Holds 10-year note auction

Feb 11 N/A Italy Euro 4-5bn 30-yr syndicated bond auction

Feb 11 11:03 Sweden Holds I/L bond auction

Feb 11 11:10 Italy Announces details of bond auction

Feb 11 11:30 UK 3.5% 2045 Gilt auction

Feb 11 19:00 US Holds 30-year bond auction

Feb 11 n/a US Details of 30-yr TIPS auction on Feb 18

Feb 12 11:10 France Details of bond auction on 18 Feb