Oil Price Fundamental Daily Forecast – API Report on Cushing Inventories Should Set the Tone Late

U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading lower on Tuesday. Both contracts are down a third consecutive session with the selling being primarily driven by concerns over the global supply glut and forecasts of increased shale production in the United States.

Traders are also expressing concerns over lower future demand amid weakening global economic growth. Furthermore, even after two weeks of consolidation, traders are expressing doubts over the impact of planned production cuts led by OPEC and other non-OPEC producers.

With all of these factors piling up at once, prices for WTI crude plunged over 2 percent, while Brent suffered a more than 1 percent setback.

At 0941 GMT, February WTI crude oil is trading $48.68, down $1.52 or -3.03% and February Brent crude oil is at $57.86, down $1.75 or -2.94%.

While OPEC is trying to reduce production in an effort to balance supply and stabilize prices, the U.S. continues to produce at near record levels. Rattling investors on Monday was a report from market intelligence firm Genscape, which said inventories at the U.S. storage hub of Cushing, Oklahoma, which is the delivery point for the WTI futures contract, rose by more than 1 million barrels from December 11 to 14.

Furthermore, according to the U.S. Energy Information Administration, oil production from seven major U.S. shale basins is expected to climb to 8.03 million barrels per day (bpd) by the end of the year for the first time.

Besides the supply concerns, oil buyers were also shaken by another steep drop in U.S. equity prices and concerns that demand will weaken because of slower global economic growth.

Forecast

The direction of the stock market and the U.S. Dollar could influence prices early Tuesday, but later in the session, the weekly report from the American Petroleum Institute should control the price action. In this report, traders will be watching the supply at Cushing, Oklahoma to see if it matches the Genscape estimate. Prices could rally if the actual comes in better than the predicted more than 1 million barrel increase.

On Wednesday, along with the weekly EIA report, traders are likely to be influenced by the Fed’s monetary policy decisions because it should effect the U.S. Dollar. Prices could break hard if Fed Chair Powell paints a gloomy outlook for the economy. However, we could see a rally if Powell says the economy is strong and the Fed will reduce the pace of rate hikes.