FxGrow Fundamental Analysis – 29th March, 2017
By FxGrow Investment Research Desk
Oil Bullish Forces In Action Over OPEC Deal Extension, Eyes on U.S Inventories
The long waited deal between OPEC and Non-OPEC counties has finally saw the light as we mentioned in the last article we posted. Yesterday, oil levels surged +$0.94, with a high 48.73, highest levels for this week and today, crude extended bullish candles with 48.57 with expectations to surpass Wednesday's highs. Crude levels were confined with $1.65 price action with six consolidation consecutive sessions indicating low volatility as markets were anticipating hints from either U.S increased shale drilling or from OPEC striking a newer deal, other than Vienna.
API data showed U.S. crude supplies up 1.9 million barrels. The American Petroleum Institute late Tuesday reported a rise of 1.9 million barrels in U.S. crude supplies for the week ended March 24, according to sources. The API data also showed a decline of 1.1 million barrels in gasoline supplies and a fall of 2.0 million barrels in distillates, sources said. Supply data from the Energy Information Administration will be released Wednesday morning. Analysts polled by S&P Global Platts forecast an increase of 300,000 barrels in crude inventories.
Between the U.S and OPEC, another fundamental catalyst logged the field, (Libya) an armed protesters blocked Sharara and Wafa oil western fields, reducing output by 252,000 barrels per day (bpd), a source at the National Oil Corporation (NOC) told Reuters late on Tuesday.
MOSCOW (Reuters) - Russia and Iran have pledged to continue efforts to rein in oil production and stabilize markets, the presidents of both countries said in a joint statement on Tuesday. "Russia and Iran will continue cooperation in this sphere (in oil output cuts) in order to stabilize the global energy market and ensure stable economic growth," the statement from Russian President Vladimir Putin and Iranian counterpart Hassan Rouhani said.
According to Bank of America Merrill Lynch, U.S. oil production growth between September and December was almost entirely the result of offshore wells, which increased production by 220,000 barrels a day in that period. Offshore projects are much more long-term investments. They are far more costly to develop and take years to get started. "Those projects have an inertia," said John Kilduff of Again Capital. Total U.S. oil production peaked at 9.6 million barrels a day in 2015 and fell to 8.56 million by September, according to Energy Information Administration data. Since then, U.S. production has jumped back, reaching 9.1 million barrels a day this month, according to the latest EIA weekly data. (CNBC).
The Organization of the Petroleum Exporting Countries (OPEC), along with some other producers including Russia, have agreed to cut production by almost 1.8 million bpd during the first half of the year in order to rein in a global fuel supply overhang and prop up prices. But as markets remain bloated halfway into the cuts, there is a broad expectation that the supply cuts will be extended into the second half of the year. Despite the rising consensus of extended cuts, the OPEC-led strategy to re-balance oil markets is not without controversy. As OPEC and especially Saudi Arabia cut their production, other producers not participating in the cuts have been quick to fill the supply gap and gain market share. (Reuters).
In the United States in particular, shale oil drillers have seized the opportunity to ramp up output and exports. As a result, China became the third biggest overseas destination for U.S. crude oil in 2016, according to data from the Energy Information Administration (EIA), up from ninth position the previous year.
"In 2016, U.S. crude oil exports averaged 520,000 bpd, 12 percent above the 2015 level, despite a year-over-year decline in domestic crude oil production," the EIA said.
Conclusion: Currently, the U.S has the upper hand controlling oil bearish levels, but given the above fundamentals between Libyan oil field issues and OPEC and Non-OPEC deal waving on horizon, crude levels could steady back to $50>$52 pb, that's if and only if. Otherwise, crude levels will sustain the $47>$49 pb.
Remark : Look forward for U.S Crude inventories set to be released today at 3:30 PM GMT and forecasts are 1.2M compared to 5.2M on previous sessions. The above fundamentals are the key player and markets should pay attention about what's coming next, either from OPEC or perhaps another new fundamental other than Libyan protesters, which could tackle oil prices upward or downward.
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