Crude Oil Weekly Fundamental Analysis, August 3 – August 7, 2015 Forecast

Analysis and Recommendations:

September Crude Oil futures finished the week lower. For a couple of days, however, it looked as if the market was poised to post a potentially bullish technical reversal. This notion fell apart on Friday.

The main catalysts behind the mid-week reversal to the upside were surprise drops in crude oil supplies and production.

July has been a terrible month for crude oil with Saudi Arabia and the U.S. increasing production. Also helping to create volatility and to drive the market lower was the huge sell-off in Chinese equity markets and reports which showed a slowdown in its economy.

On July 29, the U.S. Energy Information Administration reported that U.S. crude oil inventories fell by 4.2 million barrels last week. Analysts and traders were looking for a drawdown of about 100,000 barrels.

U.S. oil production also fell by 145,000 barrels a day to 9.4 million barrels a day. This was the largest one-week decline since October 2013. Analysts and traders could not pinpoint a specific event that could have caused the drop in production so this could represent a change in trend. It probably proves the old saying, “Nothing cures low prices like low prices”.

Also supporting the rise in crude oil prices was the drop in crude stocks at the Cushing, Oklahoma delivery hub. Inventories fell by 212,000 barrels the week-ended July 24.

The supply/demand report was painting a rosy picture for the market until industry firm Baker Hughes reported on Friday that U.S. energy firms added five rigs this week after putting 21 rigs into service last week, the most in over a year, despite the dive in U.S. crude prices from recent highs in June.

Friday’s close may have been weak, suggesting a follow-through move this week, however, if last week’s low at $46.68 holds, this would suggest that investors are putting more weight on the inventories and not much on the increase in the rig count. If prices continue to fall this week then the increased rig count has become an issue.

In the long-run, crude oil is not likely to post a major bottom until OPEC cuts production to avoid lower prices and this is not likely until its December meeting.

Fundamentally, this market is still bearish unless the EIA reports start to show a bullish trend. Technically, the market is ripe for a potentially bullish reversal bottom, but this is likely to be short-lived and just another shorting opportunity for the major players.

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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