Oil Price Fundamental Daily Forecast – Huge Jump in Gasoline Inventory Could Begin to Weigh on Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading at their highest levels since late February early Thursday, supported by a drop in U.S. crude inventories and the unilateral decision by Saudi Arabia to cut output.

At 12:04 GMT, February WTI crude oil is trading $50.78, up $0.15 or 0.30% and March Brent crude oil at $54.23, down $0.07 or -0.13%.

US Energy Information Administration Weekly Inventories Report

U.S. crude oil stockpiles fell sharply last week while fuel inventories rose, the Energy Information Administration (EIA) said on Wednesday.

Crude inventories fell by 8 million barrels in the week to January 1 to 485.5 million barrels, their biggest decline since August, exceeding analysts’ expectations in a Reuters poll for a 2.1 million-barrel drop. The drawdown in stocks in typical for the end of the year, when energy companies take barrels out of storage to avoid hefty tax bills.

U.S. gasoline stocks rose by 4.5 million barrels last week, the biggest increase since April, the EIA said, ahead of expectations for a 1.5 million-barrel rise.

Distillate stockpiles, which include diesel and heating oil, rose by 6.4 million barrels, versus expectations for a 2.3 million-barrel rise.

Refinery crude runs rose by 89,000 bpd in the week, with utilization rates up 1.3 percentage points to 80.7% of capacity, their highest since August.

Oil Prices Underpinned After Saudi Arabia Announces Voluntary Production Cut

Oil prices continued to rise on Thursday in response to Saudi Arabia’s decision to make a big voluntary production cut.

Saudi Arabia, the world’s biggest oil exporter, said earlier in the week it would make additional, voluntary oil output cuts of 1 million barrels per day (bpd) in February and March, after a meeting of OPEC+, which groups the Organization of the Petroleum Exporting Countries and other producers, including Russia.

OPEC+ agreed most producers would hold output steady in February and March while allowing Russia and Kazakhstan to raise output by a modest 75,000 bpd in February and a further 75,000 bpd in March.

With coronavirus infections spreading rapidly, producers are wary of a further hit to demand.

Short-Term Outlook

The markets continue to grind higher, but we don’t seem to have the same euphoric tone like we saw earlier in the week.

The big jump in gasoline stocks in the EIA report should be a major concern for crude oil buyers because it reflects a slowing economy and lower demand. This may begin to encourage investors to trim some of their long positions on Thursday.

The markets could fall sharply without changing trend because this week’s moves by OPEC+ indicate flexibility, which will prevent a huge sell-off like we saw early last year when the pandemic started. If the pandemic worsens and demand drops further, OPEC+ will have the option to continue to postpone or even increase production cuts. This will be a safety net for buyers.