Oil Fundamental Forecast – January 23, 2017

Crude oil prices closed higher on Friday on optimism that the week-end meeting between OPEC/non-OPEC nations would demonstrate compliance with a plan to cut production, trim supply and stabilize prices.

U.S. March West Texas Intermediate crude oil finished the daily session at $53.22, up $1.10 or +2.11%. International Brent crude oil closed at $55.49, up $1.33 or +2.46%.

In other news, oilfield services firm Baker Hughes reported its weekly count of oil rigs operating in the United States increased by 20 to 551, compared with 522 at this time last year.

This was the largest weekly increase since a recovery in the rig count began in June, and the 11^th week in 12 that drillers added rigs.

Forecast

The price action on Monday is going to be determined by the outcome of this week-end’s meeting in Vienna. Going into the meeting, member of OPEC and non-OPEC countries including Russia, hoped to establish a compliance mechanism to verify whether producers are sticking to their pledges to collectively reduce output by 1.8 million barrels per day (bpd).

According to Saudi Arabia’s energy minister, about 1.5 million bpd had already been taken out of the market, bringing the oil market close to balance.

Of course the talk is optimistic because OPEC and especially Saudi Arabia has been spoon-feeding the global media positive news all week. In the meantime, the positive news has been offset by negative news about increased U.S. production. This is essentially why the price action can best be described as rangebound.

With U.S. oil stocks expected to continue to rise and given the strong possibility that production in Libya and Nigeria may be expanded, I believe that any euphoric rally triggered by optimism coming out of the OPEC meeting in Vienna will be thwarted by reports of growing supply.

Although Saudi Arabia believes the global market is moving close to balance, I believe that 21 days is too early to tell if the program is working. I expect to continue to see the same type of sideways to lower trading over the near-term until I start to see a balance over a longer period of time.