Oil Fundamental Forecast – July 28, 2016

Trading was light in crude oil most of the overnight session as traders took to the sidelines ahead of today’s U.S. Energy Information Administration’s weekly inventories report at 1430 GMT and the release of the Fed’s latest monetary policy statement at 1800 GMT. September WTI Crude Oil futures closed at $42.69, down $0.23 or -0.54%. Global benchmark Brent Crude traded down 55 cents at $44.32.

Oil prices were trading close to three-month lows early Wednesday, pressured by an American Petroleum Institute report that showed oil stocks declined by less than expected. Weekly data from the American Petroleum Institute (API) late on Tuesday showed that U.S. crude stocks fell by 827,000 barrels in the week to July 22, well below the 2.3 million barrel draw that had been forecast.

Today’s widely-watched U.S. Energy Information Administration report is expected to show a 2.257 million barrel draw down, but these expectations may change because of the API numbers. Last week, the report came in at -2.342 million barrels.

Concerns over demand for refined products have also been weighing on crude oil prices lately. Earlier this week, Bloomberg warned that the drop in demand for oil and products could still outpace the decline in production. Despite the fact that driving season is in full bloom, demand for gasoline had not risen as much as expected. According to the API, gasoline stocks fell by 420,000 barrels versus an estimate of an increase of 675,000 barrels. Distillate fuel stockpiles rose by 290,000 barrels in the week ending July 22 versus a forecast of a 700,000 barrel gain.

Late Tuesday, the World Bank issued its latest set of forecasts for crude oil prices but the new data is subject to interpretation. On the plus side, the World Bank has raised crude oil’s price forecast this year to $43 a barrel from $41 a barrel in its April assessment. However, prices are expected to end the year lower compared with current price levels.

“The oil price rebound reflects a number of supply disruptions that removed up to 2.5 million barrels per day of production at peak during May and June, with large losses concentrated in Canada due to wildfires, and in Nigeria due to militant attacks on oil infrastructure. In addition, there were disruptions in other countries, including Kuwait, Iraq, and Libya,” added the World Bank.

The World Bank added that production from non-OPEC countries declined, but OPEC production rose, as Iran pumped vigorously after Western sanctions against the country were lifted.

Global demand meanwhile, remained strong, “albeit slowing.”

Finally, the World Bank concluded, “Downside risks to the energy price forecast include higher-than-expected output and further weakening in growth (of emerging market and developing economies). Supply disruptions among key producers could lead to higher prices.”

The biggest impact on the crude oil futures market today should be the EIA data. Missing the estimate to the upside is likely to be bearish. A miss to the downside is expected to be bullish for prices. Additionally, a hawkish Fed statement could put some pressure on the dollar-denominated crude oil market if it sparks a rally in the U.S. Dollar Index.

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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Thursday, July 28, 2016

Government Bond Auctions

Date/Time Country Type

Jul 27 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Jul 28 11:10 Italy Holds bond auction