Oil Fundamental Forecast – May 4, 2017

U.S. West Texas Intermediate and internationally-favored Brent crude oil broke to their lowest levels since mid-November before short-covering pushed the markets higher into the close. The markets were pressed lower earlier in the session by a disappointing government report.

June WTI crude oil closed at $47.82, up $0.16 or +0.34%. June Brent crude oil finished the session at $50.79, up $0.33 or +0.65%.

The U.S. Energy Information Administration said on Wednesday that crude stockpiles fell less than expected the week-ending April 28. The government report also showed an increase in gasoline inventories due to weakening demand.

According to the EIA, crude inventories fell by 930,000 barrels last week, well below analysts’ estimates for a decrease of 2.3 million barrels. Crude oil stocks have steadily declined for the last four weeks, but at 527.8 million barrels they are still 3 percent higher from this time a year ago. The report also showed that U.S. production rose for the 11^th straight week.

There was some bullish news on Wednesday, but it had very little impact on the price action. According to reports, Russia contributed the largest production cut outside OPEC. It said as of May 1 that it had cut output by more than 300,000 barrels per day since hitting peak production in October.

Forecast

We could see a technical bounce from current levels because we are nearing previous support areas, however, gains are likely to be capped because of the bearish fundamentals.

The market is currently taking its direction from U.S. inventories and rising production. Investors are also monitoring the activity among OPEC and non-OPEC members as to whether they have been complying with the current deal to cut output and whether they will agree to an extension of the program beyond the June deadline.

Since OPEC doesn’t meet until May 25, the focus is likely to remain on U.S. production and supply, and if both continue to rise then prices should remain under pressure.