Oil Fundamental Forecast March 1, 2017
Crude oil prices closed mixed on Tuesday, but the highlight of the day was the sharp intraday break that was quickly absorbed by new buyers, in a move that we’ve become accustomed to seeing.
U.S. April West Texas Intermediate crude oil closed at $54.01, down $0.04 or -0.07%. International April Brent crude oil finished the session at $56.51, up $0.09 or +0.16%.
The catalyst behind the selling pressure was concerns over rising U.S. oil output, despite OPEC’s attempt to stabilize prices and trim the global supply glut through a series of production cuts by members and non-members.
U.S. stockpiles have risen for seven straight weeks, and current forecasts are fueling worries that demand growth may not be sufficient to soak up the global crude oil glut.
Helping to drive prices lower on Tuesday was end-of-the-month selling in gasoline. Additionally, signs that the U.S. shale industry is recovering also weighed on the market.
Late Tuesday, the American Petroleum Institute (API) reported a build of 2.502 million barrels. Traders were looking for a 2.800 million barrel build.
The API also reported a 544,000-barrel build in inventories at the Cushing, Oklahoma facility.
According to the API, gasoline inventories rose 1.84 million barrels. Analysts were looking for a 1.5-million barrel draw. Distillates drew down 3.73 million barrels.
Reuters reported on Tuesday that compliance with OPEC’s plan to cut production hit 94 percent in February. However, this news was offset by worries over rising U.S. production.
Technical factors continue to play a role in the lack of direction in the crude oil market. Sellers are defending the $55.00 area and buyers are protecting $50.00. Tuesday’s price action re-established the retracement zone at $53.45 to $53.07 as support.
Wednesday’s U.S. Energy Information Administration’s weekly inventory report is expected to show a build of 1.5 million barrels, hardly enough to drive prices sharply higher or lower.
Continue to look for a rangebound trade. The hedge funds continue to come in strong on the breaks, but seem to be hesitant about buying strength. The wildcard, in my opinion, will be increased compliance with OPEC’s plan by the Russians. If they decide to cut production by the amount they promised then look for an upside breakout.