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Oil Fundamental Forecast – May 26, 2016

By:
James Hyerczyk
Updated: May 25, 2016, 12:13 UTC

July Crude oil futures were higher on Wednesday but backing off its high as it approached last week’s top at $49.56. The early rallied was fueled by

Oil Fundamental Forecast – May 26, 2016

July Crude oil futures were higher on Wednesday but backing off its high as it approached last week’s top at $49.56. The early rallied was fueled by better-than-expected inventories data. Buyers pushed the market closer to $50 a barrel in reaction to the news, putting the market at its highest level in over seven months.

July West Texas Intermediate Crude Oil was up 58 cents a barrel at $49.20. Internationally-favored Brent Crude Oil rose 47 cents to $49.08 per barrel.

According to the American Petroleum Institute, U.S. crude oil stocks dropped by 5.137 million barrels to 536.8 million the week-ending May 20. Traders were looking for a drawdown of 3.300 million barrels.

Traders said a portion of the drawdown was due to falling imports caused by the wildfires in Canada, which lost about 1.5 million barrels per day in production. The strengthening economy may have also contributed to increased oil consumption.

Gasoline stocks rose by 3.6 million barrels, while inventories of distillate fuels, including diesel and heating oil, fell by 2.9 million barrels, the API data showed.

On Wednesday, investors expect to see another huge draw when the U.S. Energy Information Administration reports its official inventory figures. The estimate is for a 2.450 million barrel draw down.

Traders also warned that although a move to or over $50 per barrel may look attractive on the charts, there is still a danger of topping out at this level because of the global supply glut. Additionally, the longer the market lingers near the $50 level, the greater the chance of increased output from U.S. producers. Last week’s rig count was unchanged, which indicates producers may have stopped shutting down rigs. An increase in the number of producing rigs this week will send a bearish signal.

Traders also said that much of the recent price surge can be blamed on the outages in Canada and the supply disruptions in Nigeria. These are being perceived as short-term events and that the supply glut is big enough to stop any rally and lead to renewed selling pressure.

Another factor that could slow down the rally or even trigger a fresh break is the stronger U.S. Dollar. If economic data continues to improve then this may encourage the Fed to raise rates in June. This would make the dollar a more attractive investment that could put pressure on dollar-denominated commodities like crude oil.

The key factors driving the price action today will be the EIA report and the U.S. Dollar. The EIA report is already priced in so in order to maintain the rally, it has to show a greater than expected drawdown. Gains, however, will be limited if the U.S. Dollar rallies.

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.

WEEKLY

This Week in Petroleum

Release Schedule: Wednesday @ 1:00 p.m. EST (schedule)

Gasoline and Diesel Fuel Update

Release Schedule: Monday between 4:00 and 5:00 p.m. EST (schedule)

Weekly Petroleum Status Report

Release Schedule: The wpsrsummary.pdf, overview.pdf, and Tables 1-14 in CSV and XLS formats, are released to the Web site after 10:30 a.m. (Eastern Time) on Wednesday.

Today’s economic releases:

Cur. Event Actual Forecast Previous
  USD API Weekly Crude Oil Stock -5.137M -3.300M -1.140M
  USD API Weekly Cushing Crude Oil Stock -0.189M -0.950M 0.508M
  NZD Trade Balance (MoM) (Apr) 292M 60M 117M
  NZD Trade Balance (YoY) (Apr) -3,660M -3,940M -3,380M
  AUD Construction Work Done (QoQ) (Q1) -2.6% -1.5% -3.6%
  EUR GfK German Consumer Climate (Jun) 9.8  9.7 9.7
  EUR German Business Expectations (May) 101.6 100.8 100.4
  EUR German Current Assessment (May) 114.2 113.2 113.2
  EUR German Ifo Business Climate Index (May) 107.7 106.8 106.6
  EUR EU Finance Ministers Meeting  
  USD Goods Trade Balance (Apr)   -60.10B -56.90B
  USD FOMC Member Harker Speaks  
  USD Services PMI (May)   53.1 52.8
  CAD Interest Rate Decision   0.50% 0.50%
  USD Crude Oil Inventories   -2.450M 1.310M
  USD Cushing Crude Oil Inventories   0.461M
  USD FOMC Member Kashkari Speaks  
  USD FOMC Member Kaplan Speaks  
  AUD Private New Capital Expenditure (QoQ) (Q1)   -3.0% 0.8%

30-Minute Brent Crude Oil

 

30-Minute Crude Oil

Upcoming Economic Events that you should be monitoring:

Thursday, May 26, 2016

Cur. Event Actual Forecast Previous
  GBP BBA Mortgage Approvals   44.8K 45.1K
  GBP Business Investment (QoQ) (Q1)   0.1% -2.0%
  GBP GDP (YoY) (Q1)   2.1% 2.1%
  GBP GDP (QoQ) (Q1)   0.4% 0.4%
  USD FOMC Member Bullard Speaks  
  USD Core Durable Goods Orders (MoM) (Apr)   0.3% -0.2%
  USD Durable Goods Orders (MoM) (Apr)   0.5% 1.3%
  USD Initial Jobless Claims   275K 278K
  AUD RBA Assist Gov Debelle Speaks  
  USD Pending Home Sales (MoM) (Apr)   0.6% 1.4%
  USD FOMC Member Powell Speaks  
  AUD RBA Assist Gov Debelle Speaks  
  JPY National Core CPI (YoY) (Apr)   -0.4% -0.3%
  JPY Tokyo Core CPI (YoY) (May)   -0.4% -0.3%

Government Bond Auctions

May 25 11:03 Sweden Sek 1bn 3.5% 2022 & Sek 3bn 1% 2026 bonds

May 25 11:05 Norway Holds bond auction

May 25 11:30 Germany Eur 1bn 2.5% Jul 2044 Bund

May 25 19:00 US Holds 5Yr Notes Auction, 2Yr FRN

May 26 11:10 Italy Announces details of bond auction

May 26 11:10 Italy Holds Zero-coupon/BTPei auction

May 26 17:20 Sweden Details of I/L auction on Jun 02

May 26 19:00 US Holds 7Yr Notes Auction

May 30 11:10 Italy Holds bond auction

Jun 01 10:30 Denmark Holds bond auction

Jun 01 11:30 Germany Eur 4bn Apr 2021 Bobl

Jun 01 11:30 UK 1.5% 2021 Gilt

Jun 01 17:20 Sweden Announces details of bond auction on Jun 08

Jun 02 10:30 Spain Holds bond auction

Jun 02 11:03 Sweden Holds I/L bond auction

Jun 02 11:50 France Holds bond auction

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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