Crude Oil Weekly Fundamental Analysis, August 17 – August 21, 2015 Forecast

Analysis and Recommendations:  Uncertain global growth and higher production drove October crude oil futures into its lowest close in six years. 

Last week, the U.S. Energy Information Administration (EIA) said crude oil inventories fell by 1.68 million barrels to 453.6 million barrels. Analysts were looking for a decline of 1.9 million barrels. The EIA also said total gasoline inventories fell by 1.3 million barrels while distillate fuel inventories rose by 3 million barrels. Analyst estimates called by a 1.6 million barrel decline in gasoline stocks and a 600,000 barrel rise in distillate stocks. 

That was the short-term outlook for the week. The EIA also contributed to the weakness after it issued a new outlook for the rest of 2015 and 2016. 

Early last week, the EIA set in motion another round of selling pressure when it lowered this year’s and next year’s crude oil forecast. In its monthly Short-Term Energy Outlook, it dropped its 2015 benchmark crude oil price $6 to $45 per barrel and its 2016 estimate $8 to $54. 

According to the EIA, “The recent price declines reflect concerns about lower economic growth in emerging markets, expectations of higher oil exports from Iran, and continuing actual and expected growth in global inventories”. 

Also contributing to last week’s weakness which drove prices to their lowest levels since the 2009 financial crisis, were growing global production and economic trouble in China and Greece. 

Contributing to the global glut was increased production from Saudi Arabia, which increased output to a record 10.24 million barrels per day in the second quarter 2015, up 470,000 barrels per day from the first quarter and 740,000 barrels per day in the same quarter last year. 

Concerns about increased production from Iraq also proved to be valid after the OPEC member reported a rise in production to nearly 4 million barrels per day from 3.33 million per day in the second quarter of last year. 

In its monthly report, the EIA also estimated that domestic oil production declined by 100,000 barrels per day in July compared with June. It also expects U.S. production to continue to decline through mid-2016 before it resumes growing in late 2016. 

This year’s cuts in U.S. production have been more than offset by increased international production, which is the primary reason why prices have been falling. The EIA confirmed this in its report when it said, “Global liquids production continues to outpace consumption”. 

Unless there is dramatic shift in the fundamentals, crude oil prices are expected to continue to weaken this week. If there is a rally it is likely to be short-covering due to oversold technical conditions or position-squaring and profit-taking by the commodity funds. Any substantial surprise in this week’s EIA inventories report could also give short-sellers an excuse to pare positions. 

FxEmpire provides in-depth analysis for each currency and commodity 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 recent analysis and information in our weekly reports and we provide daily updates and outlooks. 

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