Oil Price Fundamental Weekly Forecast – Cushing Inventories, U.S. CPI Data Should Drive Price Action

U.S. West Texas Intermediate and international-benchmark Brent crude oil posted a two-sided trade last week before finishing higher for the week. The price action was fueled by a successful test of a key support area on the daily charts.

The fundamentals were largely bearish, but buyers were able to overcome these negative effects with a powerful performance on Friday, fueled by a robust U.S. jobs report which suggested a strong economy and a better outlook for demand.

May WTI Crude Oil futures finished at $61.92, up $0.83 or +1.36% and June Brent Crude Oil settled at $65.27, up $1.16 or 1.81%.

Until Friday’s surge to the upside, gains were limited by mounting bearish factors including a stronger U.S. Dollar, signs of an inventory build at the U.S. futures delivery hub in Cushing, Oklahoma, surging U.S. crude production and investor concerns over a potential trade war.

In other news, according to the U.S. Energy Information Administration, U.S. crude inventories rose by 2.4 million barrels in the week-ended March 2, compared with analysts’ expectations for an increase of 2.7 million barrels.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 605,000 barrels, the EIA said, the 11^th straight week of declines.

Weekly data from the U.S. Department of Energy also showed weekly U.S. crude production hit a record high last week of almost 10.4 million barrels per day (bpd).

Earlier in the week, the EIA said it expects U.S. crude output in the fourth quarter of 2018 to reach an average of 11.17 million bpd, up from the previous forecast a month ago of 11.04 million bpd.

Additionally, the number of rigs exploring for oil and natural gas in the U.S. increased by three this week to 984. That exceeds the 768 rigs that were active this time a year ago. Houston oilfield services company Baker Hughes reported Friday that 796 rigs drilled for oil this week and 188 for gas.

Forecast

We should know early in the week if the rally on Friday in reaction to the U.S. jobs report was real. Some say it was just a knee-jerk reaction to expectations of stronger demand and increased demand for risky assets. Others are saying that the move was an overreaction to a solid jobs report and that gains are likely to be limited because of concerns over rising U.S. production.

This week, traders will be paying particular attention to reports from market intelligence firm Genscape which is expected to show inventories at the Cushing, Oklahoma storage hub rose by more than 290,000 barrels in the week to March 6, according to traders who saw the data.

Stockpiles in Cushing have more than halved since November and this increase, if confirmed by official data, would be the first build in 12 weeks.

I’m looking for increased volatility this week also because traders will be forced to pay attention to multiple factors including the direction of the U.S. Dollar, the stock market, inventories and a possible retaliation to Trump’s tariffs.

Most of all, traders will be watching the U.S. consumer inflation data because this will influence next week’s new Fed economic projections. They are likely to telegraph whether the Fed will raise rates as many as 2 or 4 times this year. This will influence the direction of the U.S. Dollar. A stronger dollar is likely to weigh on foreign demand for crude oil.