Oil Price Fundamental Daily Forecast – Positive Outlook for Trade Deal Squeezing Shorts

Look for the rally to continue as long as investors remain confident that a US-China trade deal is in the works, and as long as OPEC and Russia continue to stick with their plan to cut oil production by 1.2 million barrels per day in an effort to trim the excessive global supply and to stabilize prices.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading higher on Wednesday, hitting their highest levels since December 17. Optimism that a US-China trade deal could be in the works boosted investor appetite for the risky commodity.

The markets jumped earlier in the session after the US-China trade talks were extended for an unscheduled third day on the hopes that the world’s largest economies can strike a trade deal. The meetings wrapped up after a “good few days,” a U.S. official said.

The early price action suggests traders are ignoring the mixed results from the weekly American Petroleum Institute (API) inventories report. The report showed a large crude oil draw, but a jump in gasoline and distillate inventories.

At 0925 GMT, February WTI crude oil is at $50.33, up $0.55 or +1.10% and March Brent crude oil is at $59.23, up $0.51 or +0.87%.

American Petroleum Institute Inventories Report

The API reported a huge inventories draw of 6.127 million barrels for the week-ending January 4, compared to analyst expectations for a smaller draw of 3.300 million barrels.

Inventories at the Cushing, Oklahoma futures hub this week climbed by 331,000 barrels.

The API also reported a large build in gasoline inventories for the week-ending January 4 in the amount of 5.5 million barrels. Analysts had forecast a build of 3.45 million barrels for the week.

Furthermore, distillate inventories increased this week by 10.2 million barrels, well-above the expected build of 2.7 million barrels.

Forecast

Look for the rally to continue as long as investors remain confident that a US-China trade deal is in the works, and as long as OPEC and Russia continue to stick with their plan to cut oil production by 1.2 million barrels per day in an effort to trim the excessive global supply and to stabilize prices.

The long-term trend is still down, but the markets have crossed to the strong side of critical resistance areas. The move is being led by speculative buying and short-covering. Prices could accelerate to the upside over the near-term if the hedge funds start to cover their short positions aggressively and possibly switch to the long side of the market.

The U.S. Energy Information Administration will release its weekly inventories report at 1530 GMT. The report is expected to show a drawdown of 2.4 million barrels.

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