Oil Price Fundamental Daily Forecast – Needs More Help from OPEC to Extend Gains

Crude oil prices are holding steady early Thursday after new government data released on Wednesday was strong enough to reverse the damage from a private industry report showing an inventory build instead of the widely expected inventories draw down.

Traders came in early Wednesday with a bearish tilt because the weekly inventories report from the American Petroleum Institute for the week-ending May 12, released late Tuesday, showed a surprise crude oil build rather than the estimated draw down.

Yesterday, prices turned around and July West Texas Intermediate crude oil and August Brent crude oil closed higher after the U.S. Energy Information Administration said U.S. crude stocks declined for the sixth straight week. Gasoline and distillate inventories also declined.

According to the EIA, U.S. crude inventories fell by 1.8 million barrels for the week to May 12, less than the 2.4 million barrels that had been forecast, but still good enough to erase the damage from the API report.

Forecast

Although the crude oil drawdown was somewhat disappointing, traders were impressed by the fairly large rise in refinery utilization. This is a strong indication for increasing demand over the near-term. U.S. crude production has climbed 10 percent since mid-2016 to 9.3 million barrels per day, close to top producers Russia and Saudi Arabia.

Having seen a nearly two-week short-covering rally bring prices in WTI and Brent crude oil back about 50% of their last sell-off, it’s now up to OPEC and non-OPEC members to agree to a further extension of the deal to cut production at the cartel’s May 25 meeting to bring in new buyers to sustain the rally.

Saudi Arabia and Russia agreed to a 9-month extension earlier in the week. Kuwait, Iraq, Oman and Venezuela have said they supported an extension to the supply cuts. This news is helping to underpin the markets because it indicates negotiations over a new deal will go smoothly at the OPEC meeting.

Based on the current price action, it looks as if an OPEC agreement to extend the production cuts may be enough to hold prices in a range, but an agreement to make deeper output cuts may be needed to sustain the rally.

For WTI crude, the key level to watch is $49.29. A sustained move over this level could drive the market into $50.51. If sellers come in at this level, we could see a correction into $47.05 over the near-term.

For Brent crude, traders should watch the price action at $51.82. Holding above this level could drive the market into $53.03. A failure at this level could lead to a pullback into $49.64.