Oil Fundamental Forecast – April 26, 2017

Crude oil futures were trading sideways to lower early Wednesday after a late report on Tuesday showed a rise in U.S. crude inventories. Reports of global record supplies strongly indicate that OPEC’s plan to cut supplies, trim inventory and stabilize prices is not working.

Late Tuesday, the American Petroleum Institute (API) released a report that showed U.S. crude oil inventories rose by 897,000 barrels in the week to April 21 to 532.5 million barrels. Analysts were looking for a 1.6 million barrel draw.

Gasoline inventories showed a 4.4 million-barrel build.

Despite OPEC and non-OPEC pledges to trim production by as much as 1.8 million barrels per day (bpd) during the first half of the year, the average value of the Brent crude oil forward curve has fallen by more than $5 per barrel since the start of the year, when the OPEC-led program began.

The drop in prices strongly implies that traders have doubts about the effect of the cutbacks on supplies. Some traders are blaming the drop in Brent prices on the record crude oil volumes in circulation on ships around the world.

According to shipping data from Thomson Reuters Eikon, about 50 million bpd has been booked for shipment on tankers this month, up more than 10 percent since December 2016.

Forecast

Bulging supply is likely to continue to pressure prices although both U.S. West Texas Intermediate and internationally-favored are both oversold on the daily charts. Given this scenario, traders are going to have to decide whether to continue to sell weakness, or wait for a short-covering rally.

Today’s U.S. Energy Information Administration’s inventories report is expected to show a 1.1 million barrel draw down. However, this may change given the rise reported by the API.

One report showing a build and one report possibly showing a draw suggests investors should brace for volatility or a possible two-sided trade.

Perhaps crude oil won’t be the deciding factor today in the direction of the market. The price action may be dictated by the gasoline number.

Crude oil prices plunged nearly 4 percent last week when gasoline inventories rose unexpectedly. We could see a similar move today if the gasoline numbers come in bigger than expected.