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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Oil Market Forecast & Review 31st January 2014

Crude oil futures surged this week as traders appeared to be unfazed by a few of the traditional fundamentals that should have curtailed the upside action.

This week, the Energy Information Administration (EIA) reported that U.S. crude oil stocks jumped 6.4 million barrels during the week-ended January 24. Analysts were looking for the data to show a 2.1 million barrel increase.

Prices rallied despite production increases after cold weather shut down many U.S. refiners in the Midwest and East Coast the previous week. A greater than expected increase in crude oil imports also contributed to the increase in supply.

The hard numbers show that supply stood at 357.6 million barrels the week-ended January 24. This represented a 4.17% surplus to the EIA five-year average of 343.34 million barrels. The EIA also reported that refinery utilization rates rose 1.7 percentage points to 88.2%. The break in the cold weather allowed the Midwest refiners to increase production by 6.6 percentage points to 94%.  

The weekly price gain could have been greater if not for the break in the equity markets and the additional reduction of monthly monetary stimulus by the U.S. Federal Reserve that tends to drive up the U.S. Dollar. Since crude oil is dollar-denominated, a stronger Greenback usually means lower foreign demand.

Despite the rally in crude oil, traders still have to be concerned about the possible impact on demand if the emerging-market sell-off reaches the crisis mode. Crude oil prices held up fairly well this week, but questions have been raised over whether this trend can continue over the long-run if the weakness prevails in the emerging economies.

While some traders believe this week’s gains were limited by slowing growth in China, the market was certainly helped by the freezing temperatures across a major part of the U.S. The cold weather helped drive up demand for product. However, late in the week, the biggest influence on prices was the mostly positive U.S. economic news. On January 30, the market received a boost after the Commerce Department said the U.S. economy grew at a 3.2% annual pace in the fourth quarter.

As the market nears key resistance areas, traders are going to have to decide whether the increased demand is going to last or go away as temperatures begin to rise. In addition, investors should discover over the next couple of weeks if the emerging market issues are likely to continue. Finally,…




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