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Oil Price Fundamental Daily Forecast – Divergence Between WTI and Brent May Be Signaling Short-Term Bottom

By:
James Hyerczyk
Published: Oct 31, 2018, 07:43 UTC

The divergence on the daily chart between December WTI crude oil and January Brent crude oil on Tuesday and technically oversold conditions suggests the market may be ripe for a short-term counter-trend rally. This may be the reason for today’s early strength.

Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading higher early Wednesday despite the release of a bearish industry inventories report. Technically, oversold indicators may be contributing to today’s rebound. Fundamentally, investors are still concerned about rising U.S. supply and fears over the outlook for demand amid the escalating trade dispute between the U.S. and China.

At 0719 GMT, December WTI crude oil futures are trading $66.80, up $0.62 or +0.94% and January Brent crude oil futures are at $76.86, up $0.91 or +1.20%.

Crude oil futures hit a 10-week low on Tuesday, however, this move may have been exhaustion because prices are rallying early Wednesday despite the report of a bigger than expected inventory build.

Late Tuesday, the American Petroleum Institute (API) reported a crude oil inventory build of 5.69 million barrels for the week-ending October 26. This was the fourth build in as many weeks as reported by the API. Analysts were looking for a build of 4.110 million barrels.

According to the API data, the six-week running tally of crude oil inventory gains equals 27 million barrels.

The API also reported a draw in gasoline inventories as well for the week-ending October 26 in the amount of 3.5 million barrels. Analysts had predicted a draw of 2.137 million barrels for the week.

Distillate inventories were down this week by 3.1 million barrels, compared to a smaller expected draw of 1.369 million barrels per day.

Helping to keep the pressure on crude oil is a report that the U.S. is ready to impose additional tariffs on China. However, the bearishness was softened a little after an optimistic President Trump said on Monday that he thinks there will be “a great deal” with China on trade but warned that he has billions of dollar’s worth of new tariffs ready to go if a deal is not possible. Trump also said he would like to make a deal now but that China was not ready.

The current sell-off is also being fueled by reports that oil production from Russia, the United States and Saudi Arabia reached 33 million barrels per day for the first time in September, Refinitiv Eikon data showed.

Forecast

The divergence on the daily chart between December WTI crude oil and January Brent crude oil on Tuesday and technically oversold conditions suggests the market may be ripe for a short-term counter-trend rally. This may be the reason for today’s early strength.

Additionally, a stabilizing stock market may encourage some speculative buying.

At 1430 GMT, the U.S. Energy Information Administration’s weekly inventories report is expected to show a 3.6 million barrel increase.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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