Oil Price Fundamental Daily Forecast – Concerns Over Rising U.S. Production, Inventories are Capping Gains

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly higher early Wednesday. Volume is below average and the range is tight for a second session. Traders seem to be reluctant to buy strength at current price levels despite worries over the impact of U.S. sanctions against Iran’s oil exports that begin in November. Nonetheless, the markets remain near four-year highs reached on Monday.

At 0610 GMT, November West Texas Intermediate crude oil is trading $75.31, up $0.08 or +0.11% and December Brent is at $84.87, up $0.07 or +0.08%.

Helping to keep a lid on prices are concerns over rising U.S. crude inventories and an expected increase in production.

Weekly American Petroleum Institute (API) Report

Late Tuesday, the API reported a build of 907,000 barrels of United States crude oil inventories for the week-ending September 28, compared to analyst expectations of a 1.132 million barrel build.

The API also reported a draw in gasoline inventories as well for the week-ending September 28 in the amount of 1.703 million barrels. Analysts were looking for a build of 1.156 million barrels in gasoline.

Distillate inventories were down this week by 1.197 million barrels, compared to an expected draw of 1.672 million barrels.

Additionally, inventories at the Cushing, Oklahoma futures hub increased last week by 2.018 million barrels. The largest build since March.

Forecast

We all know the longer-term narrative. The oil market is fragile and vulnerable to supply disruptions because no one is certain how much Iranian oil will be removed from the market once the sanctions begin on November 4. Traders can’t even guess at the amount of the shortage because they aren’t sure if countries like China and India will participate in the oil boycott.

Furthermore, although Saudi Arabia and Russia have agreed to increase production by 1.4 million barrels per day in an attempt to make up the expected shortfall, traders aren’t sure if this will be enough. Especially since the Saudis really don’t have any spare capacity.

Essentially, the rally is being driven by uncertainty. And this uncertainty is not likely to be lifted until at least November 4. In the meantime, traders may have to deal with supply disruptions in Venezuela, Libya, Nigeria or even a pipeline outage in the North Sea.

On Wednesday, however, they are going to have to deal with the U.S. Energy Information Administration weekly inventories report. It is expected to show a 1.1 million barrel increase. Prices could weaken if the number comes in higher than expected.