Oil Price Fundamental Weekly Forecast – Holiday Shortened Week, No Fresh EIA Supply News Until Friday

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures settled higher last week in an impressive move that took the markets to multi-month highs. WTI would’ve close near its highest level since May 22 if not for a steep break on Friday. Brent also reached its highest level since May 22 before backing off into Friday’s close.

Last week, February WTI crude oil settled at $60.44, up $0.46 or +0.77% and March Brent finished at $65.20, up $0.95 or +1.46%.

Several factors helped to underpin crude oil prices this week including lower U.S. supply, the OPEC+ production cuts and demand growth expectations. Prices likely retreated on Friday on profit-taking ahead of the holiday-shortened week. Extremely light volume may have also contributed to the weakness at the end of the week as buyers were scare.

U.S. Government Reports Crude Oil Inventory Decline

On Wednesday, the EIA reported that U.S. crude supplies fell by 1.1 million barrels for the week-ending December 13. Traders were looking for a decrease of 1.5 to 2.5 million barrels during the period.

The EIA data also showed supply increases of 2.5 million barrels for gasoline and 1.5 million barrels for distillates. Supply for gasoline was expected to climb 2.4 million barrels and distillate inventory was forecast to have risen by 600,000 barrels.

OPEC and Allies Agree to Deeper Production Cuts

Two weeks ago, OPEC and other non-OPEC producers such as Russia agreed to deepen production cuts by a further 500,000 barrels per day (bpd) from January 1 on top of previous reductions of 1.2 million barrels per day.

Positive Demand Growth Expectations

Prices were lifted last week on increasing hope that the Phase One trade deal between the United States and China would lead to increased future demand. There weren’t any major announcements regarding the deal and traders remained in the dark as to where and when it would be signed. Furthermore, traders are also awaiting further details. Nonetheless, any comments seemed to be upbeat.

On Thursday, China announced a list of import tariff exemptions for six oil and chemical products from the United States, further boosting the demand outlook.

Additionally, sentiment was uplifted when Treasury Secretary Steven Mnuchin said Thursday that he had no doubt trade negotiators representing the U.S. and China would sign their so-called “phase one” trade deal in early January.

Other News

Advancement of the U.S.-Mexico-Canada Agreement (USMCA), which is set to replace the North American Free Trade Agreement (NAFTA), also boosted oil last week.

However, a rise in the U.S. rig count, an indicator of future supply from the world’s largest producer, also put pressure on prices.

U.S. energy firms added the most oil rigs this week since February 2018, even though producers have been reducing spending on new drilling, energy services from Baker Hughes Co. said in its report on Friday.

Companies added 18 oil rigs in the week to December 20, bringing the total count to 685, the most since early November, Baker Hughes said.

Weekly Forecast

A holiday-shortened week can go either way. Low volume can also produce whipsaw action so be prepared for wild swings and try not to get caught chasing breakouts if the volume isn’t rising on the move. Those can be bull or bear traps.

Unless there is major news, any breakout are likely to be triggered by a rogue trader gunning for stops.

Next Wednesday, the markets will be closed for the Christmas holiday so the U.S. Energy Administration report won’t be released until Friday at 16:00 GMT. So essentially, we’re going to go the entire week without any fresh U.S. supply news.