Oil Price Fundamental Weekly Forecast – All Eyes on Pipeline Shutdown, Gasoline Inventory Numbers

U.S. West Texas Intermediate and Brent crude oil futures posted a choppy two-sided trade, but still managed to close over 2% higher for the week. Traders set aside most worries about the raging pandemic in India by surmising that the end of lockdowns in the United States and parts of Europe would offset any drop in demand from the Coronavirus-ravaged country.

Last week, June WTI crude oil futures settled at $64.90, up $1.32 or +2.08% and July Brent crude oil closed at $68.28, up $1.52 or +2.23%.

Prices rose to their high of the week after the American Petroleum Institute (API) reported larger than expected across the board draws in crude oil, gasoline and distillates on Tuesday. However, a mixed U.S. Energy Information Administration (EIA) report on Wednesday showed an unexpected build in gasoline inventories and this paused the buying and may have brought in a few sellers.

American Petroleum Institute Weekly Inventories Report

The American Petroleum Institute (API) reported late Tuesday that U.S. crude supplies fell by 7.7 million barrels for the week ended April 30. Ahead of the report, traders were pricing in at 3.9 million barrel draw.

The API also reported that gasoline stockpiles fell by 5.3 million barrels versus pre-report estimates of a 500,000 barrel drawdown.

Meanwhile, distillate inventories declined by nearly 3.5 million barrels. Traders were looking for a 1.6 million barrel drawdown.

Energy Information Administration Weekly Inventories Report

According to the U.S. Energy Information Administration (EIA), crude inventories fell by 8 million barrels in the week to April 30 to 485.1 million barrels, compared with analysts’ expectations in a Reuters poll for a 2.3 million-barrel drop.

U.S. gasoline stocks rose by 737,000 barrels in the week to 235.8 million barrels, the EIA said, compared with analysts’ expectations in a Reuters poll for a 652,000-barrel drop.

Distillate stockpiles, which include diesel and heating oil, fell by 2.9 million barrels in the week to 136.2 million barrels, versus expectations for a 1.1 million-barrel drop, the EIA data showed.

Weekly Outlook

Gasoline inventories will probably drive the price action this week as the U.S. moves closer to the summer driving season. But there is a major snag at the start of the week that the market has overcome: ransom-seeking hackers have broken into Colonial Pipeline, prompting the company to shut one of America’s major arteries for fuel delivery.

We don’t know how crude oil will be affected because it will depend on whether the ransomware made its way into the company’s operational technology network, which interfaces with the pipeline itself, Reuters wrote.

While we expect to see a jump in gasoline and distillate prices because it is the country’s top fuel pipeline network, crude oil prices could actually fall if there is less-demand from the refineries. At this time, we’re just going to have to wait and see if the situation can be rectified in a few days.

Setting aside the pipeline issue, the direction of the crude oil market this week is likely to be determined by the API and EIA gasoline inventory numbers.