Oil Prices Jump 6% On Surprise U.S. Drawdown, But World Bank Sees Limited Upside In 2016

Oil prices are up sharply in Friday’s session as investors are displaying optimism about the reported 5-million-barrel drawdown in U.S. crude stockpiles last week. The EIA’s reported 5-million-barrel drawdown was much better than the 3.2 million barrel build that analysts had forecast.

Although the total U.S. commercial crude inventory still rests at historically high levels for this time of year, investors know that consistent stockpile drawdowns will be the next step in eliminating the massive global crude oil supply glut that led to the collapse in oil prices in 2014.

The rise in crude prices may also be driven in part by some other oil-related headlines in the news. Later this month, top global OPEC and non-OPEC oil producers will be meeting in Doha to discuss a potential global production freeze.

In addition, a South Dakota oil spill has led to the shutdown of the Keystone Pipeline that delivers hundreds of thousands of barrels of crude oil to Cushing, Oklahoma, on a weekly basis.

Finally, Reuters is reporting that a fire that sources describe as “very bad” has broken out at LyondellBasell Industries NV LYB’s Houston refinery that is responsible for 263,776 barrels-per-day of capacity.

All of these headlines could contribute to temporary disruptions in crude production.

Related Link: Energy Technicals Pair Trade: Buy Chevron And Exxon, Sell Ensco And Transocean

Looking Ahead

Despite market optimism, the World Bank sees limited upside to crude prices in the short term. In its latest Russian economic forecast released this week, the World bank says that it projects $37/bbl oil prices for the remainder of 2016 and a rebound “to around US$50 per barrel in 2017 and beyond.”

So far this year, the United States Oil Fund LP (ETF) USO is down another 8.3 percent.

Disclosure: The author holds no position in the stocks mentioned.