Oil Price Fundamental Daily Forecast – Prices Tumble on OPEC Output, Surprise API Build

Crude oil prices fell nearly 2 percent after reports showed that OPEC’s output rose in July despite the cartel’s attempt to slash production.

U.S. September West Texas Intermediate crude oil futures settled at $49.16, down 1.01 or -2.01% and international-benchmark October Brent crude oil finished the session at $51.78, down 0.94 or -1.78%.

According to Bloomberg News, OPEC’s July output rose by 210,000 barrels a day. Separately, market-monitoring firm Petro-Logistics said the producer group’s output was up by 145,000 barrels a day last month. These reports follow Monday’s report from Reuter that implied a jump of 90,000 barrels a day from OPEC members.

Forecast

The selling pressure could continue on Wednesday, following a potentially bearish weekly inventories report from the American Petroleum Institute (API). According to the API, crude stocks rose by 1.8 million barrels in the week-ending July 28 to 488.8 million. Analysts were looking for a 2.8 million barrel draw. Traders sold crude oil on the news because it reduced the chances that the recent inventory draws were a sign of a tightening U.S. market.

Gasoline inventories also fell this week, more sharply than expected, with a 4.827-million-barrel draw for the week-ending July 28. Analysts were looking for a draw of about 1.3 million barrels.

Traders are looking for today’s U.S. Energy Information Administration’s weekly inventories report to show a 3.2 million barrel draw. However, this estimate could change due to the API data.

Prices could rebound if the EIA report shows a draw. Prices could retreat further if a build comes in bigger than the API report.

Crude could turn bearish in a hurry if OPEC can’t get control of its output and U.S. production continues to increase. The speed of the correction will be determined by the hedge funds. They are long the market and if they panic and begin taking profits aggressively, they could trigger a sharp drop in prices.

If the hedge funds decide to lighten up slowly, or continue to buy on the dips then we could see a slow grind to the downside or a rangebound trade over the near-term.