Oil Fundamental Forecast – March 23, 2017

Crude oil prices are rebounding early Thursday from four-month lows, mostly due to technically oversold conditions. The selling pressure the previous session was strong enough to drive the Brent futures contract under the psychological $50.00 a barrel level, before bargain-hunters and profit-takers came in to force a recovery in prices.

At 0700 GMT, international June Brent crude oil futures were trading at $51.19, up $0.32 or +0.63%. U.S. West Texas Intermediate crude oil was at $48.34, up $0.30 or +0.62%.

On Wednesday, crude oil prices initially plunged in reaction to new government data which showed U.S. inventories are continuing to rise. However, by the end of the session, prices rebounded enough to erase most of the loss.

According to the U.S. Energy Information Administration (EIA), U.S. inventories rose by almost 5 million barrels to 533.1 million last week, well over forecasts for an increase of 2.8 million. Traders attributed the increase to persistent U.S. production and a rise in imports from Canada.

Additionally, the high inventories are coming at a time when U.S. oil production is rising. Recent data from the EIA shows the output is up over 8 percent since mid-2016 to more than 9.13 million barrels per day (bpd) to levels comparable in late 2014, when the oil price slump started.

In other news, reports showed growing supply concerns in Asia. The current bloated market in Asia encouraged China to reduce gasoline imports. This forced refiners to send huge volumes overseas. New reports also showed that China is refining more fuel than the domestic market can use.

China’s gasoline exports in February hit the second highest on record, up 76.6 percent over a year earlier at 1.06 million tonnes, according to data from Chinese customs.

The report also showed China imported just 7,245 tonnes of gasoline in February, tumbling 94 percent from the same period last year.

The price action early in the session on Thursday indicates that crude oil traders may have seen enough of this current break and have decided to book profits well ahead of the November 14, 2016 bottom at $45.78, which many believe to be the next major downside target.

Based on the current price at $48.35 for the May WTI contract, it looks as if the market has the upside momentum to challenge a key level at $48.50. Overtaking this price could lead to further upside action with potential targets today at $49.82 and $50.14. However, unless there is unexpected bullish news, I don’t think there is enough buying to drive prices into this area.

The bullish news that investors are waiting for is the announcement that OPEC is strongly considering extending its program to cut production beyond the June deadline.