Oil Price Fundamental Daily Forecast – API Inventory Surge Offsets Talk of Additional OPEC Output Cuts

Today’s U.S. Energy Information Administration (EIA) weekly storage report, due to be released at 14:30 GMT, is expected to show a 2.5 million-barrel build. However, this estimate was made before the release of the API report late Tuesday so investors should expect this estimate to increase.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and International-benchmark Brent crude oil futures are trading lower on Wednesday, erasing more than half of yesterday’s strong gains after industry data showed a larger-than-expected build in weekly crude inventories. However, the possibility of deeper output cuts from OPEC and its allies dampened the selling pressure.

At 09:15 GMT, December WTI crude oil futures are trading $53.82, down $0.66 or -1.18% and December Brent crude oil is at $59.07, down $0.63 or -1.04%.

American Petroleum Institute Weekly Inventories Report

The API reported late Tuesday an estimated crude oil inventory build of 4.45 million barrels for the week-ending October 17. Analysts were looking for a 2.232-million-barrel build.

After Tuesday’s inventory move, the net draw for the year is now at 10.82 million barrels for the 43-week reporting period so far, using the API data.

The API also reported a draw of 702,000 barrels of gasoline for the week-ending October 17. Analysts predicted a draw in gasoline inventories of 2.267 million barrels for the week.

Distillate inventories fell by 3.491 million barrels for the week, while inventories at the Cushing, Oklahoma futures hub, rose by 1.988 million barrels.

Demand Concerns Rise after IMF Predicts Slower Growth in Major Asian Economies

Economic growth across Asia is set to slow more than expected, according to the latest projections by the International Monetary Fund (IMF).

In its Regional Economic Outlook report released Wednesday, the IMF said growth in Asia could moderate to 5% in 2019, and 5.1% in 2020 – that’s 0.4% and 0.3% lower than its April projections.

Earlier this week, the IMF had projected the Chinese economy could grow at 5.8% next year – slower than the 6.1% forecast for 2019.

OPEC May Be Silver-Lining

According to reports, OPEC is mulling whether to deepen production cuts amid concerns of weak demand growth next year, underpinning prices after helping to lift both benchmarks on Tuesday.

OPEC and other oil producers including Russia, a group known as OPEC+, have pledged to cut production by 1.2 million barrels per day (bpd) until March 2020.

OPEC and other non-members are scheduled to meet again from December 5 to 6.

Before moving forward, however, OPEC has to first boost adherence to the group’s output reduction pact before committing to more cuts, sources from the oil-producing club said.

Daily Forecast

Today’s U.S. Energy Information Administration (EIA) weekly storage report, due to be released at 14:30 GMT, is expected to show a 2.5 million-barrel build. However, this estimate was made before the release of the API report late Tuesday so investors should expect this estimate to increase.

If OPEC wants to stop the current price slide then it is going to have to make a stronger statement about cutting future production. Today’s price action suggests that the API numbers have already offset the gains attributed to the bullish news regarding OPEC on Tuesday.

“Further OPEC cuts are unlikely the cure-all medicine. But by the numbers, the magnitude of the expected oversupply in 2020 is thought to be well within OPEC’s ability to manage,” Innes added.

An easing of tensions between the United States and China is helping to cushion the overall bearish sentiment for oil, but all it will take is one slip-up, just one negative comment about trade negotiations to send prices sharply lower.

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