Oil Price Fundamental Weekly Forecast – Selling Pressure Should Continue Amid Stock Market Volatility, Rising Supply

U.S. West Texas Intermediate and international-bench Brent crude oil futures plummeted over 11 percent last week with investors doubting the impact of the planned OPEC-led production cuts which are expected to begin on January 1. Concerns over rising U.S. production also continue to dominate the trade. Traders also continued to be worried about the strength of the global economy heading into the new year.

Last week, February WTI crude oil settled at $45.59, down $5.88 or -11.42% and February Brent crude oil closed at $53.82, down $6.46 or -12.00%.

In posting its worst week since January 2016, traders also blamed the global supply glut, heightened stock market volatility, and fears of a government shutdown as other reasons why the hedge funds remained convincingly short crude oil.

Weekly U.S. Energy Information Administration Report

Oil prices were supported a little at mid-week after the U.S. government reported a third straight weekly decline in U.S. crude supplies and a drop in distillate stocks.

The U.S. Energy Information Administration (EIA) reported that domestic crude supplies fell by 500,000 barrels for the week-ended December 14. Traders were looking for a larger decline of 3 million barrels in crude supplies. This was better than the American Petroleum Institute’s report on Tuesday which showed a 3.5 million barrel rise.

Gasoline stockpiles rose by 1.8 million barrels the week-ended December 14. Distillate stockpiles dropped 4.2 million barrels, according to the EIA. Traders were looking for gasoline inventories to increase 2.6 million barrels and for distillate stocks to fall 900,000.

Forecast

There’s nothing in the cards to show crude oil prices could turnaround this week especially since volume is expected to be light due over the Christmas holiday. We could, however, see some whipsaw trading conditions especially because of the heightened stock market volatility.

Overall pressure, however, is being generated by strong production in the United States, Russia and Saudi Arabia. The Russians and the Saudis will start trimming production on January 1, but the U.S. is likely to continue at its record pace. Until U.S. output is curtailed, there’s not a lot of news out there that would be strong enough to shake up the hedge funds enough to jump out of their heavily short positions.

Furthermore, since OPEC has no control over U.S. production, the cartel and its allies may have to come up with another plan to trim supply and stabilize prices.