Crude oil continued to rally yesterday for the third straight day on the basis of the strong inventory drawdown from crude storage facilities. Subsequently, WTI CLN5 futures rallied strongly to trade around the $61.18/b level.
The impetus for the big move was a report by the U.S. Energy Information Administration announcing that crude oil inventory figures fell by 6.8 million barrels. Forecasts had the initial draw at 1.7 million barrels and the result surprised oil traders and sent the commodity soaring above the key $60.00 level. However, the upside is likely to be limited as much of the rally has been abated by profit taking by the larger market participants.
The draw numbers are bullish and represent some much needed good news for the commodity. The EIA also estimates that oil output will continue to drop by over 160,000kb/d throughout 2016. However, these estimations are in conflict with advanced modelling, developed by the Goldman Sachs) commodity team, which forecasts growth of 145,000kb/d throughout the latter part of 2015 and into 2016.The reality is that the GS model is likely closer to the real number, as it includes the effect of well completion delays as well as the effect of high grading.
The risk that any rally is a self-defeating one is also very real, as while price rises, producers will clamor to restart production thereby worsening any potential supply glut.
Despite the bullish inventory draw numbers, the U.S still faces a supply capacity that outstrips the current domestic demand. Subsequently, we still view our price forecasting for crude as accurate with a price target of $45.00/b towards the end of Q4,2015.