Oil Price Fundamental Daily Forecast – API Data Shows Surprise Draw; On-Tap EIA Report

U.S. West Texas Intermediate and international-benchmark Brent crude oil rallied early in the session on Tuesday in reaction to a threat by Turkey to cut crude exports from Iraq’s Kurdistan region as well as signs that the market rebalancing is accelerating. However, long investors decided to book profits on the rally, leading to a lower close.

November WTI crude oil futures settled at $51.88, down $0.34 or -0.65% and December Brent crude oil finished the session at $57.92, down $0.51 or -0.87%.

According to reports, Turkish President Tayyip Erogan threatened on Monday to cut off the pipeline that carries 500,000 to 600,000 barrels of crude per day from northern Iraq to the Turkish port of Ceyhan.

This news combined with the OPEC and non-OPEC member program to reduce production by 1.8 million barrels per day has raised concerns of tighter supply. However, investors said this news may have been offset by a report from the U.S. Energy Information Administration that said production from wells in shale formations will rise for a 10^th month in a row in October.

Forecast

On Tuesday, WTI and Brent crude oil futures formed potentially bearish technical chart patterns.

A trade through $51.43 will confirm the WTI chart pattern and signal the start of a 2 to 3 day correction. A move through $52.43 will negate the chart pattern.

A trade through $57.25 will confirm the Brent chart pattern and signal the start of a 2 to 3 day correction. A move through $58.87 will negate the chart pattern.

The chart patterns were likely generated by uncertainty and position-squaring ahead of Wednesday’s EIA inventories report. They also indicate that investors need fresh bullish news to extend the rally.

There was no follow-through to the downside early Wednesday, following Tuesday’s dramatic reversal top. The markets actually bounced higher following a report from the American Petroleum Institute (API) which showed a draw of 761,000 barrels in United States crude oil inventories. Traders were looking for a build of 3.422 million barrels for the week-ending September 22.

Gasoline inventories built for the first time in two weeks, by 1.470 million barrels for the week-ending September 22, against an expected draw of 921,000 barrels.

Today’s EIA inventories report is expected to show a 2.8 million barrel build for the week-ending September 22.

The chart pattern says it all. In order to extend the rally, buyers are going to have to be willing to buy strength. Otherwise, the potentially bearish chart pattern will be confirmed, setting up a near-term correction.