Oil Price Fundamental Daily Forecast – Bulls Punished by Gloomy EIA Demand Forecast

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply lower on Wednesday shortly before the regular session opening. Prices are down more than 2 percent, pressured by worries over weaker demand and another reported rise in U.S. crude inventories. Longer-term, the markets continue to be supported by the hope that OPEC and is allies will extend their program to reduce production, trim the excess supply and stabilize prices.

At 11:05 GMT, July WTI crude oil is trading $51.99, down $1.28 or -2.38% and August Brent crude oil is at $60.93, down $1.36 or -2.10%.

Government Report Signals Weaker Demand

Early Wednesday, traders are reacting to a report from the U.S. Energy Information Administration (EIA) that showed a forecast calling for weaker 2019 world oil demand growth and U.S. crude production.

“Demand-side concerns became the most salient issue during the past month and contributed to volatility and price declines for risk assets such as commodities and equities,” EIA said in its Short-Term Energy Outlook.

The report went on to say the US/China trade conflict, potential US tariffs on Mexico and lower industrial activity have contributed to concerns “that economic growth could be lower than market participants’ expectations, which would cause oil demand growth to also be lower than expected.”

The EIA also trimmed its outlook for US oil production. It sees 2019 output averaging 12.32 million barrels per day, down 130,000 b/d from last month’s outlook, and 2020 output averaging 13.26 million b/d, down 120,000 b/d from last month.

The EIA report also predicts U.S. oil production will first hit 13 million b/d in January 2020, two months later than it projected in last month’s report.

American Petroleum Institute Weekly Inventories Report

Crude oil prices were further pressured by a report from the API that showed another surprise build in crude oil inventories of 4.852 million barrels for the week-ending June 6. Analysts were looking for a 481,000-barrel drawdown. The net build for the year is now at 35.05 million barrels.

Gasoline inventories also rose to 829,000 barrels, higher than the 743,000 barrel forecast. Distillate inventories fell by 3.461 million barrels for the week.

Daily Forecast

Prices are down sharply ahead of the opening and the release of the EIA weekly inventories report at 14:30 GMT. It is expected to show a 1-million barrel draw down, but given the API data, this estimate is likely to change as we head into the report.

Traders will also be watching the U.S. consumer inflation report for further evidence of an economic slowdown, which could contribute to the lower demand.

In other news, according to government data, hedge funds continue to liquidate bullish oil positions at the fastest rate since the fourth quarter of 2018.

We’re looking for the selling pressure to continue unless better than expected EIA data encourages intraday short-covering.