Oil Price Fundamental Daily Forecast – Aggressive Profit-Taking Could Erase Weather Premium

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading flat shortly before the New York opening on Thursday after giving back earlier gains.

Oil prices rallied during the pre-market session to multi-month highs as concerns that a rare cold snap in Texas could disrupt U.S. crude output for days or even weeks prompted fresh speculative buying.

At 10:50 GMT, April WTI crude oil futures are trading $61.23, up $0.07 or +0.11% and April Brent crude oil is at $64.45, up $0.11 or +0.17%. Both markets are up about 6% since their close last Thursday when speculators started to bet on the weather issues.

Texas Freeze Update

Texas’ freeze entered a sixth day on Thursday, as the largest energy-producing state in the United States grappled with massive refining outages and oil and gas shut-ins that rippled beyond its borders into neighboring Mexico.

Roughly 1 million barrels per day (bpd) of crude production has been shut, according to Wood Mackenzie analysts, and it could be weeks before it is fully restored.

NatGasWeather wrote on Wednesday, however, “the worst of the cold is over for Texas but still frigid with lows of 0s to 30s, just not nearly as much coverage of lows below 10F compared to previous days.” Additionally, temperatures are expected to become milder next week with highs of 60s.

American Petroleum Institute Weekly Inventories Report

The API reported late Wednesday a draw in crude oil inventories of 5.8 million barrels for the week-ending February 12. Analysts had predicted a build of 985,000 barrels.

The API also reported a build in gasoline inventories of 3.9 million barrels for the week-ending February 12 – after the previous week’s 4.810-million-barrel build. Analysts had expected a 1.397-million-barrel build for the week.

Distillate stocks saw a decrease of 3.500 million barrels for the week, after last week’s 487,000-barrel decrease.

U.S. oil production ticked up 100,000 barrels per day to 11 million bpd, according to the Energy Information Administration.

Daily Forecast

Oil prices are being supported by the shock of freezing temperatures across parts of the United States, including Texas, which caused production outages throughout a fair amount of oil country.

Although the short-term freeze is behind the spike in prices, bullish speculators should start preparing an exit strategy because it will start to get warmer, making the spike in prices unsustainable. During the last two sessions, we’ve seen intraday breaks from highs that erased all of the intraday gains. That means some speculators are booking profits on the rallies

Fortunately, buyers have come in on the dips, but this type of buying is not likely to last and one of this breaks is likely to continue until all of the weather premium from last Thursday’s close is erased.

The big question at this time is how much damage is there to the infrastructure, if any, and how long will it take to be repaired.

Later today, the U.S. Energy Information Administration is expected to report a 2.1 million barrel drawdown.

For a look at all of today’s economic events, check out our economic calendar.