Oil Fundamental Forecast – January 18, 2017

Crude oil prices were up most of the day on Tuesday in reaction to a sharply lower U.S. and reports that Saudi Arabia was more than complying with their end of OPEC’s deal to cut production, trim the excess supply and stabilize prices. However, prices fell late in the session and into the close on worries that U.S. firms would boost production.

U.S. West Texas Intermediate (WTI) crude oil futures closed at $53.26, down $0.17 or -0.32%. International Brent crude oil finished at $55.47, down $0.41 or -0.73%.

Prices drew support on Tuesday after Trump crushed the dollar by saying it was “too strong” for America to be competitive with China. Additionally, Saudi Arabia said it would adhere strictly to its commitment to cut output under the agreement with OPEC/non-OPEC producers.

On the bearish side, the U.S. government said on Tuesday that U.S. oil production is set to rise towards 9 million barrels per day.

Forecast

We could see similar back and forth trading on Wednesday with prices pressured by talk of increased U.S. production and supported by news of compliance with OPEC’s deal. The wildcard will be the direction of the U.S. Dollar. A stronger dollar will pressure prices and a weaker dollar will be supportive.

The dollar is likely to be influenced by the U.S. Consumer Inflation report. Month-to-month CPI is expected to come in at 0.3%, up from 0.2%. The Core CPI is expected to stay unchanged at 0.2%.

What this means is that consumer inflation is likely to be above 2 percent for the first time in two years. A monthly increase of 0.3 percent could take inflation to 2.1 percent on a year-over-year basis, above 2 percent for the first time since the summer of 2014. If this occurs then we could see a slight rise in the dollar that could put pressure on crude oil prices.

If the inflation report misses then the dollar could weaken, helping to support crude oil prices.

The charts indicate the next key downside target is $52.94 to $52.62. On the upside, the target zone is $53.89 to $54.43.

Because of Monday’s holiday, this week’s American Petroleum Institute’s weekly report has been delayed to Wednesday and the weekly U.S. Energy Information Administration’s weekly inventories report has been moved to Thursday.