Oil Price Fundamental Weekly Forecast – Forties Pipeline Shutdown Remains Supportive
Volatility was relatively low last week, but that didn’t stop the futures contracts from grinding higher. The strong price action put both futures contract in positions to challenge their highest levels since 2015.
Brent crude oil led the way higher last week, driven higher by the continued shutdown of the North Sea Forties pipeline system. Both Brent and WTI were underpinned by another bullish weekly government inventories report.
According to the U.S. Energy Information Administration (EIA), U.S. crude oil stocks fell by 6.5 million barrels, more than expected, in the week to December 15, while gasoline stocks rose 1.2 million barrels, less than anticipated, even though refining activity rose.
Crude stocks, excluding the U.S. Strategic Petroleum Reserve, currently stand at 436.5 million barrels, the lowest since 2015.
The EIA also said that for the most recent week, refiner capacity utilization rose to 94.1 percent, the highest since the summer, and above average for December.
In other news, Kuwait’s oil minister Bakhit al-Rashidi said compliance among both OPEC and non-OPEC members currently stands at 122 percent, highest since the OPEC-led deal to cut production was implemented in January.
Additionally, U.S. energy companies kept the oil rig count unchanged this week, General Electric Co.’s Baker Hughes energy services firm said on Friday, even though crude prices hovered near their highest level since the summer of 2015.
We could be looking at the same type of trading this week that we saw last week. Brent crude oil prices are expected to be supported by the continuing outage of the U.K.’s Forties pipeline in the North Sea, which delivers crude. According to an estimate from operator Ineos, the repairs could last two to four weeks.
Declining inventories in the United States due to strong export demand and efforts by major oil producers to restrict supply have also been supportive. Gains may have been limited by concerns over rising U.S. production.
Prices may also be supported by potentially bullish comments on Friday by OPEC leader Saudi Arabia and non-OPEC Russia that any exit from crude output cuts would be gradual. This is important because the OPEC-led extension of its production cuts through the end of 2018 is a necessary condition for continued inventory drawdown.