Oil Price Fundamental Daily Forecast – EIA Report Should Set the Tone Today

U.S. West Texas Intermediate and international-benchmark Brent crude oil settled mixed on Tuesday with U.S. crude posting a loss and Brent closing higher.

July WTI crude oil futures settled at $72.20, down $0.15 or -0.21% and Brent crude oil finished at $79.57, up $0.35 or +0.44%.

The markets were supported early in the session by concerns over possible supply disruptions due to new sanctions against economically-crippled Venezuela and looming sanctions against Iran. Prices started to weaken late in the session on worries that OPEC may begin increasing output as soon as June and after Washington raised concerns the oil rally was going too far.

Forecast

Crude oil futures are under pressure early Wednesday with traders reacting to a possible shift in investor sentiment and potentially bearish technical chart patterns.

At 0509 GMT, July WTI crude oil is trading $71.91, down $0.29 or -0.39% and July Brent crude oil is at $79.06, down $0.51 or -0.64%.

A possible shift in sentiment may be taking place in the market ahead of upcoming talks between Russia and Saudi Arabia about whether they should look at a controlled-relaxation of over-compliance with their output cut agreement.

Bearish traders feel that OPEC and Russia may decide to increase oil output as soon as June due to worries over Iranian and Venezuelan supply. To some, this would be the first sign that the deal to cut production may not be extended when it comes up for vote in November.

Technical traders are paying attention to two potentially bearish chart patterns. The WTI futures contract formed a closing price reversal top and the Brent futures contract is forming a divergence chart pattern. Both indicate that the selling may be greater than the buying at current price levels.

In other news, prices weakened after the release of a private estimate of weekly inventories. The American Petroleum Institute (API) reported a draw of 1.3 million barrels of U.S. crude oil inventories for the week-ending May 18, compared to analyst expectations that this week would see a draw in crude oil inventories of 1.567 million barrels.

The API also reported a build in gasoline inventories for the week-ending May 18 in the amount of 980,000 barrels. Analysts were looking for a 1.388-million-barrel draw. This is the part of the report that led to the selling pressure.

Distillate inventories saw a draw this week of 1.3 million barrels versus a forecast for a decline of 1.335 million barrels. Additionally, inventories at the Cushing, Oklahoma futures hub fell by 822,000 barrels.

The direction of the market today is likely to be determined by trader reaction to the U.S. Energy Administration’s weekly inventories report. It is expected to show a draw of 2.5 million barrels.