Oil Price Fundamental Daily Forecast – Rally Fueled by Trade Deal Optimism, Capped by IEA Report

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Thursday, recovering from early session weakness. While there is some support being generated from the signing of the U.S.-China trade deal, the OPEC+ production cuts and a bigger than expected weekly inventory draw, perhaps keeping a lid on prices is a report from the International Energy Agency (IEA) that said it expected oil production to outstrip demand.

At 15:13 GMT, March WTI crude oil futures are trading $58.55, up $0.70 or +1.21% and March Brent crude oil is at $58.53, up $0.69 or +1.19%.

In addition to the fundamental developments, technical factors are also contributing to the early strength with the markets finding support on a test of a key 50% level.

Phase One Trade Deal

Under the Phase One trade deal, China committed to buy over $50 billion more of U.S. crude oil, liquefied natural gas and other energy products over two years.

Easing of Middle East Tensions

With prices returning to their early December levels, we could see more rangebound trading now that the trade deal is in the books and there has been a de-escalation of tensions between the United States and Iran.

IEA Sees Abundant Global Stocks

On Thursday, the IEA said surging oil production from non-OPEC countries along with abundant global stocks will help the market political shocks such as the U.S.-Iran stand-off.

The IEA also said it expected production to outstrip demand for crude from OPEC even if members comply fully with a pact with Russia and other non-OPEC allies to curb output.

EIA Reports Much Bigger Than Expected Inventories Draw

On Wednesday, the U.S. Energy Information Administration (EIA) reported that oil inventories fell by 2.5 million barrels during the week-ending January 10. Traders were looking for a draw of 500,000 barrels. Inventory now stands at 428.5 million barrels.

Despite the larger than estimated draw, the report was perceived as bearish because of a huge build in products. U.S. gasoline stocks rose by 6.7 million barrels in the week to 258.3 million barrels, the EIA said, compared with analysts’ expectations in a Reuters poll for a 3.4 million-barrel rise.

Distillate stockpiles, rose by 8.2 million barrels in the week to 147.2 million barrels, versus expectations for a 1.2 million-barrel rise, the EIA data showed.

Finally, crude stocks at the Cushing, Oklahoma futures delivery hub rose by 342,000 barrels in the last week, the EIA said.