Oil Price Fundamental Daily Forecast – Powell Could Pressure Crude Oil if His Comments Support Stronger DollarEssentially, it was the best of both worlds for the bears yesterday with supply increasing because of rising U.S. production and demand likely taking a hit due to the stronger U.S. Dollar.
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures tumbled on Wednesday after crude and gasoline inventories in the United States rose unexpectedly. A stronger U.S. Dollar and a late session sell-off in U.S. equity markets also weighed on prices.
According to the U.S. Energy Information Administration (EIA), U.S. crude inventories rose by 3 million barrels last week, versus analyst expectations for a build of 2.1 million barrels. Gasoline stocks also rose by 2.5 million barrels against expectations for 190,000-barrel drop. Distillate stockpiles, which include diesel and heating oil, fell by 1 million barrels, versus expectations for a 709,000-barrel drop.
In other news, U.S. oil production surged to an all-time high in November, topping the previous record set nearly half a century ago, government data showed on Wednesday.
In its monthly report, the EIA said that U.S. drillers pumped 10.057 million barrels a day in November. The previous record of 10.044 million barrels was set in November 1970. Yesterday’s number was a revision to last month’s report which showed November’s output jumped to 10.038 million barrels a day.
The EIA projects U.S. output will average 11.2 million barrels a day next year, positioning the nation to overthrow Russia as the world’s top producer. However, the first monthly reading for December shows U.S. output may have slipped back to 9.949 million barrels.
The bearish EIA report was just one factor that drove prices lower on Wednesday. The other was the strong U.S. Dollar. Essentially, it was the best of both worlds for the bears yesterday with supply increasing because of rising U.S. production and demand likely taking a hit due to the stronger U.S. Dollar.
At 0756 GMT, WTI crude is trading $61.81, up $0.17 or -0.28% and Brent is at $64.97, up $0.24 or +0.27%.
The slight overnight rise in prices is likely being fueled by profit-taking and some light position-squaring ahead of Thursday’s second session of testimony by Fed Chair Jerome Powell, which could drive the price action in the U.S. Dollar.
Prices could tumble a third day on Thursday if Powell continues to suggest the Fed could act more aggressively later this year by raising interest rates as many as four times. This would drive up the U.S. Dollar, making dollar-denominated crude oil a less-desirable asset.
Additionally, another steep sell-off in U.S. equity markets could drive investors out of risky, speculative assets like crude oil.
The daily chart indicates that the trend could turn in April WTI crude oil if sellers take out $60.75. May Brent could weaken under $64.61 while a trade through $63.89 will indicate the selling pressure is getting stronger.