Oil Price Fundamental Weekly Forecast – Are OPEC+ Concerns Limiting Gains?

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished at a multi-month high last week, boosted by hopes that the China-U.S. trade fight would soon come to an end and by private sector and government reports showing lower U.S. crude inventories. Increased appetite for risky assets also led to greater-than-expected speculative demand for crude oil.

Last week, February WTI crude oil settled at $61.72, up $1.28 or +2.12% and March Brent crude oil finished at $66.87, up $1.67 or +2.50%.

U.S.-China Trade Deal Developments

Support for crude oil started early last week as traders reacted to comments from President Trump from over the weekend. Trump said that the United States and China would “very shortly” sign their initial trade pact.

Adding to the optimism, China said last Sunday it would cut tariffs on products including frozen pork, avocado and some types of semiconductors next year.

Trump followed up on Tuesday saying he and Chinese President Xi Jinping will have a signing ceremony to sign the first phase of the U.S.-China trade deal agreed to this month.

“We will be having a signing ceremony, yes,” Trump told reporters. “We will ultimately, yes, when we get together. And we’ll be having a quicker signing because we want to get it done. The deal is done, it’s just being translated right now.”

China has been really quiet about the trade deal, but on Wednesday officials said it was in close touch with the United States on a trade deal signing ceremony.

American Petroleum Institute Weekly Inventories Report

U.S. crude oil stocks fell more than expected in the most recent week while gasoline and distillate inventories increased, data from industry group the American Petroleum Institute (API) showed Tuesday.

Crude inventories fell by 7.9 million barrels in the week to December 20 to 444.1 million barrels, compared with analysts’ expectations for a draw of 1.83 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 2.2 million barrels, API said. Refinery crude runs fell by 514,000 barrels per day, API data showed.

Gasoline stocks rose by 566,000 barrels, compared with analysts’ expectations in a Reuters poll for a 2-million-barrel gain. Distillate fuel inventories, which include diesel and heating oil, rose by 1.68 million barrels, compared with expectations for an 867,000-barrel gain, the data showed.

U.S. crude imports fell last week by 331,000 barrels per day to 6.4 million bpd.

U.S. Energy Information Administration Weekly Inventories Report

The EIA reported that U.S. crude supplies fell by 5.467 million barrels for the week-ended December 20. Analysts were looking for a decrease of 1.7 to 3.0 million barrels. Earlier in the week, the American Petroleum Institute (API) report showed a much larger drop.

The EIA data also showed a supply jump of 1.963 million barrels for gasoline stocks and a draw of about 152,000 barrels for distillates.

Other News

A weekly report from Baker Hughes indicated that the number of active U.S. rigs drilling for oil fell by 8 to 677 this week, marking the first decline of the past three weeks. The total active U.S. rig count also fell by 8 to 805.

Weekly Forecast

Trade deal optimism is expected to continue to underpin prices, but continue to watch for volatility in reaction to the weekly inventories reports from the API and the EIA.

Also pay attention to any comments about ending the OPEC+ trade deal when the current agreement expires in March.

Helping to put a lid on prices was a report signaling that the group known as OPEC+, including members of the Organization of the Petroleum Exporting Countries and allies like Russia, may consider ending the agreement to trim global production next year.

“As far as the production cuts are concerned, I repeat once again, this is not an indefinite process. A decision on the exit should be gradually taken in order to keep up market share and so that our companies would be able to provide and implement their future projects,” said Russian Energy Minister Alexander Novak, according to Reuters on Friday, citing Russia broadcaster Rossiya 24 TV.

The report comes days after Novak was quoted as saying that OPEC+ may consider easing output restrictions at a meeting in March.

Traders are optimistic over the trade deal because it could lead to increased demand growth. However, they are watching the OPEC+ comments because ending it in March will have an impact on supply.