Oil Price Fundamental Weekly Forecast – Speculators Raised Bullish Bets on Crude for First Time in Month

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures posted solid weekly gains before giving back a little on Friday. For the most part, prices were underpinned by supply concerns, however, late in the week, these gains were being limited by renewed demand worries.

For the week, October WTI crude oil settled at $69.80, up $1.08 or +1.57% and November Brent crude oil finished at $77.64, up $1.51 or +1.94%.

Essentially, the price action was driven by basic supply and demand numbers. There weren’t any major surprise developments.

EIA Weekly Inventories Report

On Wednesday, the Energy Information Administration said U.S. crude stocks fell more than forecast the week-ending August 24. The report offset some of the weakness generated by the previous day’s potentially bearish American Petroleum Institute’s weekly inventories data.

The EIA said crude inventories fell by 2.6 million barrels in the week to August 24, compared with analysts’ expectations for a decrease of 686,000 barrels. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 58,000 barrels.

Refinery crude runs fell by 326,000 barrels per day and refinery utilization rates fell by 1.8 percentage points.

Gasoline stocks fell by 1.6 million barrels, compared with analysts’ expectations for a 370,000-barrel gain. Distillate stockpiles, which include diesel and heating oil, fell by 837,000 barrels, versus expectations for a 1.6 million-barrel increase, the EIA data showed.

Additionally, net U.S. crude imports fell last week by 657,000 bpd.

Additional Supply Factors

Last week traders reacted to expectations of supply issues with Iran and Venezuela, and strong momentum created by Wednesday U.S. government report which showed a bigger than expected draw in inventories.

According to reports, Iran’s August crude oil exports will likely drop to just over 2 million bpd, versus a peak of 3.1 million bpd in April, as importers cave to U.S. pressures to cut purchase orders. This despite Iran offering steep discounts for its oil.

Plunging output in Venezuela is also helping to underpin prices. According to CNBC, Venezuelan state-run firm PDVSA said on Tuesday it had signed a $430 million investment agreement to increase production by 640,000 bpd at 14 oil fields, valuing the investment at $430 million. However, given the country’s political and economic instability, many analysts doubted whether this investment would go through.

Additionally, the International Energy Agency (EIA) continued to warn of a tightening market late in the fourth quarter, due to a combination of supply concerns, and strong demand especially in Asia.

“Definitely there are some worries that oil markets can tighten towards the end of this year,” the IEA’s chief Fatih Birol told Reuters on Wednesday.

Additionally, Libya and Nigeria are also facing potential supply issues.

Could Supply Actually Increase?

A report from Bank of America Merrill Lynch, global supply could climb towards year-end because of increased non-OPEC production. The bank said new production in Canada, Brazil and the United States “should provide a substantial boost to non-OPEC supplies” during the second-half of the year “taming upside pressures on Brent crude oil prices”.

A report from Bank of America Merrill Lynch, global supply could climb towards year-end because of increased non-OPEC production. The bank said new production in Canada, Brazil and the United States “should provide a substantial boost to non-OPEC supplies” during the second-half of the year “taming upside pressures on Brent crude oil prices”.

Forecast

The trend is up and buyers are plentiful so I don’t see any change in trend on the horizon, but there is a possibility of a near-term correction because the market is relatively expensive at just under the high for the year.

Speculators raised their bullish bets on crude for the first time in more than a month, U.S. Commodity Futures Trading Commission data showed on Friday.

Additionally, the U.S. rig count, an indicator of future production, rose for the first time in 3 weeks, energy services firm Baker Hughes reported.

Losses could be limited by concerns over impending U.S. sanctions against Iran and falling Venezuelan output, which threaten supply.

However, limiting gains could be overbought technical. It’s been over 2 weeks since the last major bottom so the markets may be due for a near-term correction. Traders could also be using the mounting trade concerns as an excuse to book profits after a prolonged rally.

The primary stories this week could deal with trade issues. U.S. President Donald Trump threatened in an interview with Bloomberg News on Thursday to withdraw from the World Trade Organization, his latest salvo in a deepening dispute between the United States and its major trading partners. Additionally, Trump is prepared to ramp up a dispute with China and has told aides he is ready to impose tariffs on $200 billion more Chinese imports as early as next week, Bloomberg reported on Thursday.

These events make crude oil traders nervous, drive up the dollar, which makes dollar-denominated crude oil more expensive and raises concerns over future demand.

The direction of the crude oil market this week will be determined by how traders weigh the fundamental factors. Equally – means a sideways trade. More worries about supply – an upside bias. Greater worries over demand, a downside bias.