Fundamental Forecast for USOIL: Bullish

Talking Points:

After this week’s EIA Crude Oil Inventory Report and International Petroleum Week come to a close, Shale Oil producers in the US are looking pretty smart. Shale Oil producers took advantage of surging demand by ramping up production, which has been confirmed as a wise moving after surging Oil export data showed 2 million barrels a day leaving the US for the second time ever.

Exports hold a +0.564 correlation to the price of WTI Crude Oil’s front-month contract and helps explain the stubborn backwardation that continues to support price gains. Backwardation arises when a front-month futures contract demands a premium to later-dated contracts showing supply shortages and increasing demand.

The price of Crude Oil traded to the highest level in two weeks on dropping crude oil supplies to the tune of 1,617 thousand barrels marking the largest draw in five weeks. Another show of Oil market support was that the nation’s main storage facility in Cushing, Oklahoma fell to the lowest since 2014 as oil gets pushed to the Gulf Coast.

Over the last 12-months, US Crude Oil inventories have fallen by 34.23% as persistent stockpile drawdowns are no match for the often feared US Supply. As mentioned in FX Closing Bell on Thursday, Bears are often simply looking at one side of the problem instead of the other side that may be the solution to the oil market.

Data Source: Bloomberg, Chart created by Tyler Yell, CMT

Outside of the positive US inventory data was the outlook from the International Petroleum (IP) Week that also encouraged drillers to keep drilling. First, demand outlook remains strong but may lend to oil market volatility. However, likely more important in the long term is the hope that OPEC and Russia can come to a long-term agreement to continue to curb production beyond the current agreement. The idea was aired by Suhail al-Mazrouei, the energy minister of the United Arab Emirates and a rotating president of OPEC.