Oil Fundamental Forecast – December 21, 2016

Crude oil prices closed higher on Tuesday on light volume as investors reacted to the news that this week’s U.S. Energy Information Administration’s weekly inventories report will show a steep drawdown. Traders reacted positively to the news because it will be a strong sign that the global oversupply situation is abating.

On Tuesday, North Sea March Brent Crude Oil closed at $56.02, up $0.48 or +0.86%. U.S. March West Texas Intermediate Crude Oil finished at $54.19, up $0.29 or 0.54%.

In other news, Russian energy minister Alexander Novak told Russian newspaper Vedomosti that Russia may extend a production cut beyond the first half of the year if needed.

Forecast

Despite the below average holiday market volume, crude oil prices could rally on Wednesday in reaction to late Tuesday’s American Petroleum Institute’s (API) weekly report which showed a larger than expected draw of 4.15 million barrels of U.S. commercial crude. Traders were looking for a 2.5 million-barrel draw.

The API report also showed a drop in gasoline inventories of 1.96 million barrels.

Crude inventories rose again at the Cushing, Oklahoma futures hub. Storage levels at this key site have been rising rapidly since October. Inventories rose only 690,000 barrels compared with a 1.9 million barrel estimate. Some analysts aren’t too concerned about the build at Cushing because it has been primarily offset by a drop in Gulf Coast inventories.

Analysts are predicting that Wednesday’s EIA report is expected to confirm the API’s numbers. Traders expect today’s report to show a draw of 2.4 million barrels. Last week, the draw was 2.6 million.

In other news and perhaps a reason why we may have to doubt the numbers, Clipperdata is reporting that there is just under 25 million barrels of crude oil sitting offshore in the Gulf of Mexico after stormy weather conditions slowed imports two weeks ago. I’m not sure when this oil is going to show up in the inventory numbers.

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