Oil Fundamental Forecast – February 22, 2017

U.S. and international crude oil prices surged to nearly seven-week highs on Tuesday on optimism over the success of OPEC’s plan to curb production, trim the supply glut and stabilize prices.

April West Texas Intermediate crude oil closed at $54.33 up $0.34 or +0.63%. International Brent crude oil finished the session at $56.66, up $0.49 or +0.87%.

The markets received a boost early after Mohammad Barkindo, OPEC secretary general, told an industry conference in London that January data showed conformity from member countries participating in the output cut had been above 90 percent. Oil inventories would decline further this year, he added.

“All countries involved remain resolute in the determination to achieve a higher level of conformity,” Barkindo said.

Forecast

The price action today could be subdued as investors await the release of key supply/demand information from the American Petroleum Institute late Wednesday. The release of the data was delayed a day because of the U.S. bank holiday on Monday.

Analysts and traders are forecasting a 3.325 million barrel rise in crude oil stockpiles for the week-ending February 17. Gasoline inventories are expected to come in at 1.625 million barrels and distillates are expected to post a 1.075 million barrel draw down.

The U.S. Energy Information Administration’s report on inventories will also be delayed a day until Thursday.

Although the rally seems to be gaining traction, traders are reacting to only one side of the equation – Compliance with OPEC’s plan. We could see a total shift in investor sentiment late Wednesday/early Thursday with the release of the key supply data.

Hedge funds and money managers have built huge long positions so I think the markets could see increased volatility especially to the downside if they decide to trim positions.

The wild card, in my opinion, is Russia. So far it has delivered a smaller production cut than it pledged. If it decides to announce further production cuts then prices could accelerate to the upside. Keep an eye on the news for this announcement.