Oil Price Fundamental Daily Forecast – EIA Report Should Determine Direction Today

U.S. West Texas Intermediate and international-benchmark crude oil futures posted a two-sided trade on Wednesday before closing higher. The markets were pressured early in the session on concerns over excessive hedge fund buying that may have put prices in an overbought condition. Traders were also positioning themselves ahead of a pair of inventories reports from the American Petroleum Institute (API) late Wednesday and the U.S. Energy Information Administration (EIA) on Thursday.

March WTI crude oil settled at $63.92, up $0.25 or +0.39% and April Brent crude oil finished the session at $69.00, down $0.15 or -0.22%. Both closes kept the markets within striking distance of their three-year highs reached earlier in the week.

Forecast

Crude oil prices are trading mixed early Thursday, following the release of the API inventories report that showed the seventh large crude draw in seven weeks.

At 0754 GMT, March WTI crude oil is trading $63.95, up $0.03 or +0.05% and April Brent crude oil is at $68.91, down $0.09 or -0.13%.

The API reported a large draw of 5.121 million barrels of United States crude oil inventories for the week-ending January 12, marking seven large draws in seven weeks. This was higher than the 3.588 million barrel draw forecast.

The API also reported a build in gasoline inventories of 1.782 million barrels for the week-ending January 12. Analysts had expected a larger 3.596-million-barrel build.

Distillate inventories saw a build this week of 609,000 barrels. The forecast was for a 750,000 barrel draw.

Later today at 1600 GMT, the EIA will report its inventories data. It is expected to show a 1.4 million barrel draw. (Note the change in the time.)

The price action this week suggests a top may be forming. On Tuesday, both the WTI and Brent futures contracts posted potentially bearish technical closing price reversal tops (i.e. a higher-high, lower-close).

Both chart patterns were confirmed on Wednesday, but there was very little follow-through to the downside.

The limited reaction to the potentially bullish API report suggests the selling may be greater than the buying at current price levels. However, this may only be enough to limit prices to the upside. We’re going to need to see aggressive hedge fund liquidation in order to fuel a much needed correction.

The near-term direction of the markets today will be determined by whether the hedge funds come in to defend the trend, or whether they decide to start booking profits.