IGI Securities Limited – Commodity News

Karachi, December 20, 2017 (PPI-OT): Crude Oil

Technical

The WTI Crude Oil market rallied a bit during the trading session on Tuesday, reaching above the $57.50 level at one point, but then pulled back a bit. I think we are going to continue to try to go higher, but there is a lot of noise in this general vicinity, so I don’t read too much into it. On a break above the $58 level, I would be a bit more impressed. In the meantime, I suspect that we are going to go back and forth, bouncing around with a serious lack of direction. Alternately, if we break down below the $56.50 level, then I think the market could drop towards the $55 level underneath. The Brent market did very much the same, as we chop around, but ultimately didn’t make up our collective mind. With the Crude Oil Inventories announcement coming out of the United States today, it’s likely that we will get a catalyst to move in one direction or the other.

Highlights

Oil prices rose modestly as the market remained broadly range bound ahead of U.S inventory data

The January WTI crude contract expired at $57.46 a barrel, a gain of 30 cents or 0.5%

Prices may remain range bound going into the holiday season unless U.S inventory data from EIA surprise the market

Analysts by The Wall Street Journal, look for the EIA data to show U.S. oil inventories fell 3.2 million barrels last week

Crude oil production out of the U.S is expected to hit record levels next year

Fundamentals

Oil prices inched up today in Asian session, supported by expectations of a fall in U.S. crude inventories and by the ongoing outage of the North Sea Forties pipeline system.

U.S. West Texas Intermediate (WTI) crude futures were at $57.72 a barrel, up 16 cents, or 0.3 percent, from their last settlement. Brent crude futures, the international benchmark for oil prices, were at $63.94 a barrel, up 14 cents, or 0.2 percent.

Oil prices inched higher on expectations of another strong drawdown in U.S. inventories. The American Petroleum Institute said on Tuesday that U.S. crude inventories fell by 5.2 million barrels in the week to Dec. 15 to 438.7 million.

Official U.S. government data from the Energy Information Administration (EIA) is due today. Oil prices have also been supported by the continuing outage of the Forties pipeline in the North Sea, which delivers crude underpinning Brent futures.

Operator Ineos hopes to be able to fix a crack in the pipeline, which can pump around 450,000 barrels per day of crude, within two to four weeks from Dec. 11.

Despite the North Sea outage and falling U.S. crude inventories, oil prices have remained some way off their $65.63 and $59.05 per barrel recent highs for Brent and WTI respectively. Rising U.S. crude production, which has soared by 16 percent since mid-2016 to 9.8 million bpd, was capping prices.

Expectations of higher U.S. shale production into January hamstrung crude’s price increase. Most analysts expect U.S. output to break through 10 million bpd soon, which would be a new record and take it to levels on par with top exporter Saudi Arabia and close to top producer Russia, which pumps around 11 million bpd.

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