Oil Fundamental Forecast – June 30, 2016

Crude oil futures traded higher early in the session on Wednesday as the market was boosted by increased demand for higher risk assets. Also underpinning crude prices were a potential strike in Norway and crisis in Venezuela. Both events threatened to cut supply.

U.S. West Texas Intermediate (WTI) futures were last reported at $48.18, up 0.33 or +0.69%. This was off the early session high of $48.58. Internationally favored Brent Crude futures were trading at $48.91 per barrel, up 33 cents from Tuesday’s settlement.

A general “risk-on” tone was responsible for the initial rally in crude yesterday, but today’s early rally was supported by the supply side of the fundamentals, as a looming strike by Norwegian oil and gas field workers threatened to cut output from the biggest North Sea producer.

Also underpinning prices were reports that oil producers and refiners in crisis-struck Venezuela were struggling to keep output up due to power outages and equipment shortages also supported prices, traders said.

Support was also provided by better-than-expected news from the American Petroleum Institute (API) late Tuesday. The API reported that crude inventories could have fallen nearly 4 million barrels for the week ended June 24, about two-thirds more than the 2.4 million barrel estimate.

The latest API weekly inventory data recorded a draw of 3.9 million barrels compared with the expected draw of around 2.4 million barrels and followed the draw of 5.2 million barrels recorded last week. API inventories have now declined for six consecutive weeks, which indicates a significant underlying market tightening, which will offer some underlying protection to prices.

Cushing stocks continued to decline by 1.21 million barrels as indicated by Monday’s Genscape estimate that inventories at the Cushing facility declined by around 1.3 million barrels.

There was also a further decline of 0.42 million barrels in gasoline stocks following last week’s larger than expected draw, while distillate inventories fell 0.83 million barrels for the week.

On Wednesday, crude oil investors will get the opportunity to react to the latest inventory data from the U.S. Energy Information Administration. It is expected to show a drawdown of 2.365 million barrels.

The early rally suggests that a reported drawdown by the EIA has already been priced in due to the API data. Therefore, we have to conclude that today’s price action should be controlled by the events in Norway and Venezuela. Uncertainty and volatility are both likely to be persistent over the long run.

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

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Thursday, June 30, 2016

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