Oil Price Fundamental Daily Forecast – Sellers Seem to be Taking Control

U.S. West Texas Intermediate and international-benchmark Brent crude oil declined for a second day on Wednesday as a drawdown in U.S. crude stockpiles was offset by a larger-than-forecast rise in gasoline stocks and as U.S. crude oil production continued to climb to record highs.

February WTI crude oil settled at $56.59, down $0.57 or -1.00% and March Brent crude oil finished the session at $61.81, down $0.92 or -1.47%.

According to the U.S. Energy Information Administration, U.S. crude inventories dropped 5.1 million barrels the week-ending December 8, more than the estimated 3.8 million barrel draw. However, this potentially bullish news was offset by a 5.7 million barrel jump in gasoline stocks, which was more than double analysts’ expectations for a 2.5 million-barrel gain.

U.S. production also hit another record high at 9.78 million barrels per day (bpd), EIA data showed. The U.S. peak, when records were only kept on a monthly basis, is 10.04 million bpd, set in November 1970.

Forecast

Crude oil futures are trying to claw back some of Wednesday’s losses early in the session on Thursday. At 0734 GMT, February WTI crude oil is trading $56.78, up $0.19 or +0.34% and March Brent crude oil is at $62.03, up $0.22 or +0.36%.

The current mixed bag of fundamental data seems to be favoring the short side at this time. Traders have shown this week that they are willing to take profits on rallies even when the news is potentially bullish like the unplanned shutdown of the Forties North Sea pipeline earlier in the week.

If we assume that the Forties shutdown is providing a floor for the market then we have to assume that rising U.S. production is providing a cap. However, this may not be the case if the hedge funds start liquidating their long positions.

The market may have priced in the possible loss of 450,000 barrels per day of Forties crude, however, I don’t think investors have priced in the possible impact of further increases in U.S. production. Earlier in the week, the EIA forecast that domestic crude oil output will rise by 780,000 bpd to a record high of 10.02 million bpd in 2018.

WTI prices haven’t moved much in a month. This may change if the hedge funds decide they want to keep their money out of a sideways market and put it to work in another market that is trending.