Oil Price Fundamental Daily Forecast – Facing Slow Global Growth, Robust U.S. Shale Output in 2020

U.S. West Texas Intermediate and international benchmark Brent crude oil futures fell about 1% on Tuesday, the last trading day of the decade, but that didn’t stop the markets from posting their biggest annual advances in three years.

Traders said the catalysts behind the strength were an easing of tensions between the United States and China with the Phase 1 trade agreement preventing an escalation of the trade war between the two economic powerhouses and the deepening supply cuts from OPEC and its allies.

On Tuesday, February WTI crude oil settled at $61.06, down $0.60 or -0.97% and March Brent crude oil finished at $66.00, down $0.67 or -1.02%.

American Petroleum Institute Weekly Inventories Report

Late Tuesday, the American Petroleum Institute (API) reported crude oil supplies fell by 7.8 million barrels for the week-ended December 27, to 436 million barrels.  Traders were looking for a draw of 3.2 million barrels.

Crude stocks at the Cushing, Oklahoma, futures delivery hub fell by 1.4 million barrels, the API said.

Refinery crude runs rose by 74,000 barrels per day, the API data showed.

Gasoline stocks fell by 776,000 barrels, compared with analysts’ expectations in a Reuters poll for a 2.1 million-barrel gain.

Distillate fuel inventories, which include diesel and heating oil, rose by 2.8 million barrels, compared with expectations for a 1.8 million barrel gain, the data showed.

U.S. crude imports fell last week by 447,000 barrels per day to 5.97 million bpd.

Annual Recap

Brent gained about 23% in 2019 and WTI rose 34%, their biggest yearly gains in three years, backed by the recent breakthrough in the trade talks and output cuts pledged by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, according to Reuters.

Over the past year, increased U.S. oil output offset the supply reductions undertaken by OPEC, led by Saudi Arabia and stemming from U.S. sanctions on Venezuela and Iran. Lackluster demand, including in developed economies, remains a primary concern headed into 2020, Reuters said.

U.S. crude oil production in October rose to a record of 12.66 million barrels per day (bpd) from a revised 12.48 million bpd in September, the U.S. government said in a monthly report. The pace of growth is expected to slow in 2020.

Annual Outlook

We’re not looking for crude oil prices to move sharply in either direction in 2020 although there is a slight upside bias. Although the markets were up over 20% last year, keep in mind the rally followed a steep sell-off from early October to late December 2018.

Brent crude oil could straddle the $63.00 level most of the year as OPEC production cuts offset weaker demand. However, this level is likely to change later in the year especially if OPEC and its allies discontinue the production cuts when they expire in March.

Crude oil could also face headwinds from subdued global growth momentum and robust U.S. shale output levels in the first quarter (of 2020).