Oil Fundamental Forecast – September 22, 2016

Nearby West Texas Intermediate Crude Oil futures extended its gains from Tuesday’s session yesterday, boosted by a surprise third consecutive weekly U.S. crude stockpile draw. November Crude Oil futures finished the session at $45.64, up $1.59 or +3.61%.

Although fundamental factors contributed largely to Wednesday’s rally, the move did get an assist from a bullish chart pattern formed on Tuesday. Yesterday’s initial rally was fueled by late Tuesday’s surprise drawdown in the American Petroleum Institute’s weekly inventory report. The rally was further extended after the release of a bullish inventory report from the U.S. Energy Information Administration.

The API reported a 7.5 million draw in U.S. crude oil supplies, instead of a build that many expected. The EIS report showed that U.S. commercial crude inventories fell by 6.2 million barrels to a total of 504.6 million barrels in the week-ending September 16. Traders had forecast an increase of 3.4 million barrels based on surveys conducted by Reuters.

The EIA also reported that gasoline stocks fell by 3.2 million barrels. Analysts and traders were looking for a 567,000 barrel decline. Distillate stockpiles continued to trend higher, rising by 2.2 million barrels versus a 250,000 barrel increase estimate.

Crude oil futures received additional support from an oil services workers strike in Norway that threatened to reduce North Sea production.

FORECAST

With the inventory reports out of the way, the catalysts behind Thursday’s price action are likely to be the oil services workers strike in Norway and next week’s informal meeting between OPEC and non-OPEC producing countries.

According to report from Reuters, Over 300 of Norway’s oil industry workers conducted a walk-out on Wednesday after wage negotiations failed to produce an acceptable outcome for the Industri Energi trade union. At this time, a handful of wells on the Norwegian continental shelf will be forced to stop drilling as a result of the worker shortage, according to the oil and gas companies operating in the area.

The conflict is not expected to immediately affect the output of oil and gas from Norway’s continental shelf, but may do so if the conflict escalates. This statement means that crude oil prices are likely to be underpinned by the news, but it won’t necessarily drive prices higher unless it extends into next week perhaps. This is essentially a wait-and-see situation for traders.

What could have an immediate effect on prices today is more talk about a potential output freeze deal between OPEC and other major crude producers at the September 26 – 28 informal talks in Algeria.