Oil Price Fundamental Daily Forecast – Pressured by Supply/Demand Concerns, Stock Market Weakness

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures plunged over 4% early Thursday, but is attempting to claw back some of their losses as we approach the regular session opening. The catalysts behind the selling pressure is worries about the global supply glut and concerns over the outlook for energy demand. Furthermore, stock market volatility is rattling investor confidence.

At 1118 GMT, February WTI crude oil is trading $46.61, down $1.56 or -3.24% and February Brent crude oil is at $55.36, down $1.88 or -3.28%.

Federal Reserve Impact

On Wednesday, the Fed raised its benchmark interest rate as widely expected, but surprised traders when it maintained most of its guidance for additional hikes over the next two years. Traders were looking for a more dovish outlook from the central bank. The news triggered a steep sell-off in U.S. equity markets which raised concerns over the strength of the global economy. This increased worries over future demand.

Losses probably would be worse if not for a weaker U.S. Dollar. This may be helping to drive up demand for dollar-denominated crude oil.

OPEC’s Pledge to Curb Production

Traders are also saying that the lack of confidence with OPEC’s pledge to curb production, trim the excess supply and stabilize prices may be contributing to the selling pressure. However, Saudi Energy Minister Khalid al-Falih said he expected global oil stocks to fall by the end of the first quarter, but added that the market remained vulnerable to political and economic factors as well as speculation.

Additionally, OPEC Secretary-General Mohammad Barkindo said in a letter seen by Reuters on Thursday that OPEC plans to release a table detailing voluntary output cut quotas for its members and allies such as Russia in an effort to shore up prices.

U.S. Energy Information Administration

On Wednesday, the EIA reported U.S. crude inventories fell by 497,000 barrels in the week to December 14. This was smaller than the 2.4 million barrel forecast. Prices rose on the news.

Furthermore, distillate stockpiles dropped by 4.2 million barrels, the EIA said, versus expectations of a 573,000-barrel increase.

Forecast

Prices are likely to remain under pressure on Thursday unless there is a technical adjustment such as a closing price reversal bottom chart pattern. Fundamentally, it would take a surprise supply adjustment to put in a bottom. A turnaround in demand for higher risk assets like stocks could contribute to bottoming action as well as a steep drop in the U.S. Dollar.

One key takeaway from yesterday’s rally is that all its going to take is a series of crude oil inventories to turn prices higher. This is not likely, however, until after January 1 when Saudi Arabia plans to cut exports to the United States.