Oil Fundamental Analysis – Forecast for the Week of January 16, 2017

U.S. West Texas Intermediate and international Brent crude oil futures finished lower after a volatile, two-sided trade last week. After a steady opening on January 9, prices tumbled nearly 4 percent on concern that record Iraqi crude exports and rising U.S. output would undermine OPEC’s efforts to curb global oversupply. This move set a negative tone for the week.

March WTI Crude Oil futures ended the week at $53.15, down $1.72 or -3.13% and March Brent Crude Oil finished at $55.45, down $1.65 or -2.89%.

Pressuring the market early in the week was the news that Iraq, OPEC’s second-biggest producer, increased exports from the southern Basra ports to a record high of 3.51 million barrels per day (bpd) in December, according to its oil ministry.

Also weighing on prices was a forecast from Barclays that called for the U.S. rig count to rise to 850 – 875 by year end. News from ICE was also bearish. It showed speculators raised bullish bets on Brent prices to 458,048 the week-ending January 6, suggesting the market may have been overbought.

Throughout the week, the markets were peppered with both bullish and bearish news, but the overwhelming themes seemed to center on whether OPEC and the other key oil producers would cut output as promised to try to reduce the global oversupply and stabilize prices.

On the bullish side, the weaker U.S. Dollar provided some support at times. The biggest rally of the week was fueled by the news that Saudi Arabia had cut exports to Asia.

On the bearish side, expectations of increased U.S. output weighed on prices. According to the U.S. Energy Information Administration (EIA), U.S. crude production was projected to rise by 110,000 barrels per day in 2017 to 9 million bpd.

The EIA also reported that U.S. crude inventories for the week-ending January 6 increased by 4.1 million barrels. Analysts were looking for a build of 1.2 million barrels.

Forecast

Predictions of a cut in supply and higher futures prices through December encouraged investors to buy large volumes of crude oil futures contracts and many of these “long” positions are likely to be unwound or sold-off unless the market stays strong. If the market doesn’t get some fresh bullish news soon, prices are likely to tumble over the near-term.

Prices are likely to remain rangebound this week as the bulls and the bears continue to battle for control. OPEC is going to try to boost prices with positive stories about compliance with its plan to cut output. Bearish traders are going to continue to react to news about increased U.S. production.