Oil Price Fundamental Daily Forecast – Prices Boosted by Another API Drawdown

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures surged on Wednesday. U.S. crude topped $61.00 a barrel for the first time in 2 ½ years. The markets got a boost from strong U.S. economic data and worries about an escalation of unrest in Iran.

February WTI crude oil futures settled at $61.63, up $1.26 or +2.09% and March Brent closed at $67.84, up $1.27 or +1.91%.

Oil futures were helped by strong U.S. manufacturing data and a report that showed German unemployment had reached a record low. Concerns over protests in Iran, OPEC’s third largest oil producer, have underpinned the markets this week although there have been no issues with supply.

On Wednesday, the U.S. released a slew of economic data that may have been supportive for crude oil prices. ISM Manufacturing PMI came in at 59.7, beating the 58.1 forecast. Construction Spending grew 0.8%, higher than the 0.6% estimate. ISM Manufacturing Prices were 69.0, coming in well above the 64.8 forecast. Total Vehicle Sales were 17.9 million. Traders were looking for 17.5 million.

Timothy R. Fiore, chair of the ISM, said:  “This indicates growth in manufacturing for the 16^th consecutive month, led by strong expansion in the new orders and production with hiring growing at a slower rate and supplier deliveries continuing to struggle.”

“New orders expansion continues at a strong pace, with the index at seven straight months of levels above 60,” Fiore said.

Forecast

Hedge funds continue to drive prices higher, leading some to question when the profit-taking will start in reaction to signs that U.S. drillers will continue to pump more as prices rise. The latest data from the government released last week indicates that U.S. oil output is quickly approaching all-time highs above 10-million barrels a day set in the 1970s.

Other supportive catalysts were removed earlier in the week when the pipeline outages in the U.K. North Sea and Libya were resolved.

On Wednesday, the U.S. Energy Information Administration’s weekly storage report is expected to show a drawdown of 5.2 million barrels.

Late Wednesday, the American Petroleum Institute (API) reported a draw of 4.992 million barrels of United States crude oil inventories for the week-ending December 29, marking five large draws in as many weeks.

The API also reported another build in gasoline inventories at 1.87 million barrels for the week-ending December 29. Traders were looking for a build of 1.864 million barrels.

WTI and Brent futures are trading higher early Thursday.