Oil Price Fundamental Weekly Forecast – Libyan Pipeline Shutdown Offsetting Impact of Firmer U.S. Dollar

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed sharply higher last week after reversing earlier weakness fueled by a stronger U.S. Dollar.

April WTI crude oil settled at $63.55, up $2.00 or +3.25% and April Brent crude oil finished the week at $67.31, up $2.47 or +3.81%.

Helping prices to rebound was data from the Energy Information Administration which showed that U.S. crude inventories unexpectedly fell 1.6 million barrels the week-ending February 16. Crude stocks at the Cushing, Oklahoma, futures delivery hub, fell 2.7 million barrels last week. Traders were looking for a 1.8 million build.

Helping to push the markets to the upside at the end of the week was a drop in Libyan production and upbeat comments from Saudi Arabia that an OPEC-led effort to trim excessive stockpiles is working to balance the market.

Crude prices jumped on Friday after the shutdown of the El Feel oilfield in Libya, which produces 70,000 barrels per day of crude.

Forecast

Prices are likely to remain firm at the start of the week due to the events in Libya. The market seems to be in balance because the effects of the OPEC-led production cuts are being offset by rising U.S. production. This means outside events like the Libyan pipeline shutdown and economic events like the strengthening U.S. Dollar will have a bigger impact on the price action.

Taking it one step further, the Libyan pipeline shutdown is a short-term event which means it will have a bigger influence on the day-to-day price action. The impact of the stronger dollar is likely to have a longer-term effect on crude oil demand.

Traders are going to have to treat the Libyan issue the same way they reacted to the shutdown of the Keystone and the Forties North Sea pipeline shutdowns. Prices are likely to remain firm due to uncertainty. Remember that investors don’t like uncertainty. Once investors find out how long the shutdown is expected to last, the rally is likely to be capped.