Oil Price Fundamental Weekly Forecast – Lower Production, Gradual Uptick in Demand Raising Hopes for Bulls
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished higher for the third consecutive week, helped throughout the week by a friendly government inventories report, the announcement of government crude oil purchases for its strategic reserve and a dampening of concerns over rising supply by the International Energy Agency (IEA).
While those factors may have been enough to underpin the market, what finally triggered a near-term breakout was a report that showed China’s daily crude oil throughput rebounded in April from a 15-month low in March as refiners cranked up operations to meet renewed fuel demand after lock downs imposed to prevent the spread of the coronavirus outbreak were eased.
Last week, July WTI crude oil settled at $29.52, up $3.35 or +12.80% and July Brent crude oil finished at $32.50, up $1.53 or +4.71%.
US Energy Information Administration Weekly Inventories Report
U.S. crude stockpiles fell by 745,000 barrels, the U.S. Energy Information Administration (EIA) said, compared with analysts’ expectations in a Reuters poll for a 4.1 million-barrel rise.
Stocks in the Cushing, Oklahoma, storage hub fell by 3 million barrels in the last week, EIA week, filling the delivery point for WTI to more than 80% of capacity, as producers find themselves with fewer places to store oil.
US to Buy Up to 1 Million Bbls of Oil for Emergency Reserve
The U.S. Energy Department said on Wednesday it will buy up to 1 million barrels of sweet crude for the government’s emergency petroleum reserve as part an effort to help producers struggling as the coronavirus strangles oil demand, as reported by Reuters.
IEA Trims Demand Loss Estimate
The International Energy Agency (IEA) on Thursday again forecast a record drop in demand in 2020 though it trimmed its estimate of the fall citing easing lockdown measures.
China’s Daily Crude Oil Throughput Rebounds
China processed a total of 53.85 million tonnes of crude oil last month, data from the National Bureau of Statistics (NBS) showed on Friday, equivalent to about 13.1 million barrels per day (bpd). That was some 11% higher than 11.78 million bpd in March.
Baker Hughes Reports 9th Weekly Decline in US Oil Rig Count
Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil dropped by 34 to 258 this week. The oil-rig count has now fallen for nine weeks in a row, implying upcoming declines in domestic crude output. The total active U.S. rig count, meanwhile, also fell by 35 to 339, according to Baker Hughes.
Weekly Forecast
The trend may be down, but upside momentum is very strong. Furthermore, after knocking down some minor walls, traders are starting to see room to the upside as the markets seek to retrace at least 50% to 61.8% of its February to April decline. The target for the July WTI futures contract is $36.07 to $40.50. The target for July Brent crude oil is $39.45 to $44.04.
Despite the strong upside momentum, the markets still face a series of headwinds. Fears are running rife that easing lockdown measures will trigger a second wave of coronavirus infections.
Meanwhile, speaking to lawmakers on Tuesday, the White House task force coronavirus expert, Dr. Anthony Fauci, warned that relaxing stay-at-home rules too quickly could bring more “suffering and death”.
Additionally, U.S. Federal Reserve Chairman Jerome Powell also warned on Wednesday of an “extended period” of weak economic growth.
However, they can be overcome if the number of new coronavirus cases continues to flatten, and businesses and schools start to open. On the positive side, production is declining and demand may be starting to gradually increase.
This article was originally posted on FX Empire
