Crude Prices Strengthen as Outlook Becomes Positive

Crude oil prices started climbing toward $50 a barrel earlier this week, after the announcement that Saudi Arabia and Russia had agreed to work together to stabilize the oil market. But without the revelation of a specific plan to curb output, futures prices have struggled for direction.

Oil futures were also seen edging higher on Wednesday in the moments before the release of the latest weekly updates on US petroleum supplies, as traders pondered over the possibility that major oil producers will reach an agreement to bring reduce their output before the end of the month.

Jason Rotman, president of Lido Isle Advisors stated that, “Crude oil has been volatile recently, not really knowing which direction to maintain, as fundamental news regarding a potential freeze is causing classic ‘whipsaw’ range trading action.”

The October West Texas Intermediate Crude, grew by 1.4% as it gained 63 cents to trade at $45.46 per barrel on the New York Mercantile Exchange. It has enjoyed straight gains in the last 2 trading sessions, following a consecutive 4 session slump. November Brent crude on London’s ICE Futures exchange grew by 70 cents as it edged 1.5% higher to trade at $47.96 per barrel. Rotman also added that, “We believe the overall directional trend is still downward pointing, so we would not be surprised to see WTI crude oil test its recent low area at $43.”

The EIA also projected in its monthly energy outlook report that WTI crude will orbit $41.92 per barrel in the current year, this reading is higher than its previous estimate of $41.16, while Brent crude is forecasted to average $42.54 in 2016 against its August estimate for $41.60. The 2016 US oil production estimate from the EIA was also raised marginally to 8.77 million barrels per day which is 0.4% higher than the previous estimate. Before the release of the EIA’s forecast, oil was seen slightly higher as traders took the wait and see approach in anticipation of the inventories data release, the Labor Day holiday led to the US inventories report coming in later than expected this week. S&P Global Platts said it estimates that oil inventories rose by 425,000 barrels last week, but both the oil and gasoline inventories could surprise given Hurricane Hermine, while some refineries were shuttered due to the hurricane, it may have also contributed to some Americans deciding to forgo their road trips over the long weekend and instead remain at home.

Oil shrugged of the reports that the National Iranian Oil Company said that it will increase oil output in line with customer needs and export 2.2 million barrels a day in September. This plan makes it less likely that major oil producers will agree to an oil output curtailment when they meet at the end of the month. On a more positive note, the National Iranian Oil Company said it expects the oil market to rebalance in the fourth quarter 2016 or in early 2017. At last check, WTI oil futures were up 1.4% at $45.38 a barrel.