Oil Price Fundamental Daily Forecast – EIA Report Expected to Show 4.4 Million Barrel Draw

U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading lower early Thursday and for the week after President Trump turned up the heat on OPEC to reduce prices for crude.

At 0715 GMT, August WTI crude oil futures are trading $74.00, down $0.33 or -0.46% and September Brent crude oil is at $77.80, down $0.43 or -0.55%.

Today’s early price action is being driven by a late Wednesday tweet from President Trump, blaming OPEC for driving up fuel prices.

“The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!” Trump wrote on Twitter.

In other news, late Tuesday while traders were already preparing for the U.S. Independence Day holiday, the American Petroleum Institute (API) reported another major draw of $4.5 million barrels of U.S. crude oil inventories during the week-ending June 29. Traders were looking for a draw of about 3.267 million barrels.

This was on top of the even bigger draw of 9.228 million barrels of crude oil reported for the week-ending June 22.

The API also reported a draw in gasoline inventories for the week-ending June 29 of 3.1 million barrels. Analysts and traders were predicting a draw of 1 million barrels.

Distillate inventories saw a draw this week of 438,000 barrels, compared to an expected build of 633,000 barrels.

Forecast

The early reaction to Trump’s tweet was normal. Any time there’s talk of increased production or even a suggestion, prices tend to go down. However, if we’ve learned anything from last Saturday’s tweet by the President calling for the Saudi’s to increase production by as much as 2 million barrels per day and the subsequent rally to a new multi-year high earlier this week, it’s going to take more than talk at this time to break the market.

Currently, prices are being propped up by supply disruptions in Canada, Libya and Venezuela as well as looming sanctions against Iran, which could remove as much as 3.8 million barrels per day of crude oil from the market.

Last month, Saudi Arabia and Russia agreed to increase production and the U.S. continues to produce at record levels, however, unless there is a drop in demand, it appears we are headed toward a supply deficit later this year. Speculators are using this narrative to support prices and unless there is an increase in production, prices are likely to be supported into the end of the year.

Over the short-run, Canada’s production problems will go away and Libya’s issue will probably be contained. However, Venezuela is expected to continue to be a problem, and unless the U.S. softens its tone toward Iran, it will continue to contribute to the overall bullishness in the market.

Prices could weaken over the short-term because technically, the markets may be overvalued. At the same time, the Saudi’s are probably going to try to figure out how to get more oil into the market without causing a rift with its partners.

The wildcard appears to be Russia. Perhaps Trump will ask Putin at their upcoming meeting to increase production. Trump also has the option to open up the strategic supply spigot, but that will only be a short-term fix.

In other news, today’s U.S. Energy Information Administration weekly inventories report is expected to show a 4.4 million barrel draw down. The report will be released at 1500 GMT rather than the customary 1430 GMT.