Oil Fundamental Forecast – January 20, 2017

U.S. West Texas Intermediate (WTI) and International Brent crude oil futures posted an inside day on Thursday and a lower close as investors reacted to both bullish and bearish news with the latter apparently influencing investors more.

March WTI crude oil closed at $52.12, down $0.06 or -0.11% and March Brent crude oil finished the session at $54.16, down $0.11 or -0.20%.

On the bullish side of the equation, the International Energy Agency said oil markets had been tightening even before cuts agreed by OPEC and other non-member producers took effect.  However, the IEA also added that while it was “far too soon” to gauge OPEC/non-OPEC compliance with promised cuts, commercial oil inventories in the developed world fell for a fourth consecutive month in November, with another decline projected for December.

Additionally, the EIA said it raised its 2016 demand growth estimate, and said the data indicated that rising demand was slowly tightening global oil markets.

On the bearish side, the oil markets sold off after the U.S. Energy Information Administration (EIA) weekly inventories report showed crude inventories rose unexpectedly last week as refineries cut demand.

The EIA report showed U.S. commercial crude inventories rose by 2.3 million barrels in the week-ending January 13. Traders were looking for a 100,000 to 342,000-barrel decline. Total crude oil inventory now stands at 485.5 million barrels.

The EIA data also showed a much larger-than-expected increase in gasoline inventory and a surprise decline in distillate inventories.

Additionally, the head of the IEA, Fatih Birol, may have contributed to some of the weakness when he said he expected U.S. shale oil output to rebound by as much as 500,000 barrels per day over the course of 2017, which would be a new record.

A rebound in the U.S. Dollar after several days of weakness may have also weighed on prices.

Forecast

The clash between the short-term traders and the long-term investors is helping to hold the market in a wide trading range with prices hovering slightly above a major support zone at $51.43 to $50.29 and slightly below a minor resistance zone at $52.63 to $52.96 and well-below a more important resistance area at $53.89 to $54.43.

Bearish short-term sellers are likely to continue to be driven by increasing U.S. production so the weekly EIA reports are going to become increasing important to these traders.

Bullish long-term buyers are likely to continue to be driven by the hopes of greater compliance with the OPEC/non-OPEC deal. However, this is going to require discipline and strict adherence to the new quotas.