Crude Oil Weekly Fundamental Analysis, August 24 – August 28, 2015

Analysis and Recommendations:

Brent crude oil fell to a fresh October contract low as global supply glut and concerns about sluggish growth in China continued to weigh on prices.

WTI Crude oil futures plunged to a 6 ½ year low last week, setting in motion a sell-off in unleaded gasoline and energy stocks.

The week started with crude oil holding steady after previous week’s break. On Tuesday, the American Petroleum Institute (API) provided some support when it reported that crude oil inventories fell by 2.3 million barrels in the week ending August 14. Traders were looking for a decrease of 1.2 million barrels.

The API also reported that gasoline inventories decreased by 1.5 million barrels.

Support disappeared on Wednesday, however, following the release of the weekly petroleum inventories report by the U.S. Energy Information Administration (EIA) for the week-ending August 14. This report showed U.S. commercial crude inventories increased by 2.6 million barrels last week. This held total commercial crude inventory at 456.2 million barrels.

According to the EIA, total gasoline inventories decreased 2.7 million barrels last week. The figure helped maintain inventories in the middle of the five-year average range. Total motor gasoline supplied was up 6.5% compared with the same period a year ago. The EIA news, however, didn’t convince bullish investors to maintain their long positions.

U.S. oil companies continued to feel the heat from falling prices. However, despite talk of bankruptcies and acquisitions, several companies have been able to raise cash while slashing costs, focusing on most-productive wells and showing higher than expected production levels.

OPEC countries are still pumping oil at near-record levels – about 32 million barrels per day in July. This is about 2 million bpd more than OPEC’s target of 30 million. The oil cartel is expected to continue to boost crude production despite the glut in the global oil market. Production will only increase once sanctions are removed from Iraq, allowing the country to flood the market with even more oil.

Low prices are raising concerns among some OPEC members. Last week, Algeria’s oil minister sent a letter to the Organization of the Petroleum Exporting Countries’ secretariat asking that the group consider taking action in response to the drop in prices. Although the letter didn’t call for an emergency meeting or for a production cut, it may be something to watch for over the near-term. Any further developments would likely trigger a volatile short-covering rally.

Conditions could get worse before they get better. Inventory is likely to increase over the near-term as refineries start shutting down units to perform seasonal maintenance. Given this scenario. We are looking for lower prices this week. The market may be more sensitive to technical factors because of oversold conditions as well as this week’s EIA inventory data. So be prepared for aggressive counter-trend moves. 

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. 

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
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