WTI Crude Oil Price Bounced Off a Technical Support Following a Volatile Week, Downside Risk Continues

Witawat (Ed) Wijaranakula, Ph.D.
Fri Aug 5, 2016

The WTI crude oil spot price inched up just $0.20 per barrel for the week, to close on Friday at $41.80 per barrel, while the Brent crude price jumped 2.54% for the week to close at $44.42 per barrel, following a volatile week. State-owned Saudi Arabian Oil Co. said on Sunday that it would cut Arab Light by $1.10 a barrel in September, below Asia’s regional benchmark, as the oil battle with Iran heats up. 

Francisco Blanch, head of global commodity research at Bank of America Merrill Lynch, said on Bloomberg to buy this oil dip as he sees a rebound in oil prices by the end of the year. Global oil prices will average $57 a barrel in 2017, according to the median of at least 20 analyst estimates compiled by Bloomberg. 

Crude oil prices got a boost by the weekly report from the Energy Information Administration (EIA) showing a larger-than-expected decline in U.S. gasoline inventory and reduction in U.S. crude oil production. 

The EIA weekly U.S. oil inventory report on Wednesday showed an increase of 1.4 million barrels to 522.5 million barrels, excluding strategic inventories, in the week ending July 29, compared to S&P Global Platts analysts’ expectations for a drawdown of 1.9 million barrels. The American Petroleum Institute (API) inventory data on Tuesday showed a U.S. crude inventory draw of 1.3 million barrels for the week. 

There was a large decline last week in U.S. gasoline supplies of 3.3 million barrels, while distillate stockpiles, including jet fuel, diesel fuel and heating oil, increased by 1.2 million barrels, according to the EIA. Analysts were expecting a drawdown of 400,000 barrels of gasoline stocks and a decline of 500,000 barrels for distillates.

Separately, the EIA said the weekly U.S. crude oil production dropped by 55,000 barrels per day (bpd) for the week ending July 29, 2016, to 8.46 million bpd. Weekly U.S. crude oil output has fallen about 11.97% from the peak level of 9.61 million bpd during the week ending June 6, 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count was up another 7 from the previous week, to 381, compared to 316, when the rig count hit the low on June 6, 2016. 

The Labor Department said on Friday that U.S. nonfarm payrolls increased by seasonally adjusted 255,000 jobs last month, beating Wall Street economists' forecast of an 180,000 gain. The probability of a 25 basis point rate hike at the next FOMC meeting on September 21 jumped 9 percentage points from the previous day to 18.0%, while the probability of a no rate hike dropped to 82.0% from 91.0%, according to data from the CME Group as of August 5. The crude oil downside risk continues, as a Fed rate hike threat looms larger.


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