Oil Price Fundamental Daily Forecast – Bullish Factors Lining Up

U.S. West Texas Intermediate and international-benchmark Brent crude oil rose modestly on Wednesday after a surprising drop in U.S. refinery runs and an unexpected increase in inventories of gasoline and diesel.

December WTI crude oil settled at $52.26, up $0.15 or +0.29% and January Brent crude oil finished the session at $57.80, up $0.26 or +0.45%.

Prices also continued to be underpinned by ongoing tensions and rising risk premiums surrounding Iraq and Iran.

According to the U.S. Energy Information Administration, weekly crude inventories fell by 5.7 million barrels, exceeding expectations for a 4.7 million draw down. Inventories of gasoline and diesel rose, reviving some concerns about elevated inventories during a time when demand for petroleum product declines.

In other news, refining output fell 4.7 percentage points to 84.5 percent of capacity, representing the seasonally slowest rate of output since 2011. The drop-off was tied to the start of fall maintenance season.

Forecast

Crude oil futures are trading flat early Thursday despite a number of potentially bullish factors that could drive prices through recent highs.

Currently supporting the market are on-going OPEC-led supply cuts, tensions in the Middle East and lower U.S. production due to hurricane-enforced closures and the start of maintenance season.

The risk to supply from political instability in sensitive areas ranging from the Middle East to South America should continue to be supportive for prices. This week’s price spike, however, suggests that speculators have priced in current events and are now waiting for an escalation of tensions to drive prices sharply higher.

According to U.S. bank Citi, the key areas at risk to supply disruptions are Iran, Libya, Nigeria and Venezuela.

Bullish investors may also be holding back as they wait for a formal announcement of an extension of the current deal to curb production. Rumors are out there that OPEC and major oil producing partners, including Russia, are expected to extend a deal to curb production beyond its expiry date next March.

I think that there is a bullish tone in the market but having been burned several times earlier in the year, the major players are waiting for strong confirmation that the rally will extend beyond recent highs. This is more likely to occur if the production cut deal is extended because this will have a longer-term impact on the market. The tensions in the market are probably short-term speculative events.