Oil Price Fundamental Daily Forecast – Hedge Funds May Have to Sell Crude to Meet Stock Market Margin Calls

On Thursday, at 1430 GMT, traders will get the opportunity to react to the latest weekly EIA inventories report. It is expected to show a build of 2.3 million barrels. Due to the bigger-than-expected API report late Wednesday, traders now probably expect the EIA data to come in more than the original consensus estimate. This could put further pressure on the WTI and Brent markets.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower early Thursday after the release of a bearish report from the American Petroleum Institute (API) late Wednesday and ahead of today’s U.S. Energy Information Administration’s weekly inventories report.

At 0531 GMT, December WTI crude oil futures are trading $71.80, down $1.23 or -1.68% and January Brent crude oil futures are at $81.10, down $1.55 or 1.88%.

Late Wednesday, the API reported a major build of 9.75 million barrels of U.S. crude oil inventories for the week-ending October 5. Analysts were looking for a much smaller build of 2.62 million barrels. The build was the largest since February 2017.

The API also reported a 3.4 million barrel build in gasoline inventories for the week-ending October 5. Analysts had forecast a draw of 42,000 barrels.

Distillate inventories fell 3.5 million barrels the week-ending October 5 compared to an expected draw of 2.005 million barrels.

Crude stocks at the Cushing, Oklahoma futures hub also rose by 2.2 million barrels, according to the API.

Additionally, supply worries also eased as Hurricane Michael missed several key production areas although it still caused significant damage and injuries to a widespread area of northern Florida.

Nonetheless, production downtime is expected to be brief; however, this only represents a comparatively small portion of total U.S. production.

As the hurricane approached the northern coast of the Gulf of Mexico, producers cut daily oil production by about 42 percent, the Bureau of Safety and Environmental Enforcement said. This represents roughly 718,877 barrels per day of oil production.

Forecast

On Thursday, at 1430 GMT, traders will get the opportunity to react to the latest weekly EIA inventories report. It is expected to show a build of 2.3 million barrels. Due to the bigger-than-expected API report late Wednesday, traders now probably expect the EIA data to come in more than the original consensus estimate. This could put further pressure on the WTI and Brent markets.

Furthermore, investors could react to another steep sell-off in U.S. equities. Hedge funds may need to meet margin calls and they could be forced to sell long crude oil futures contracts to raise the necessary cash.

The major downside target for December WTI crude oil futures is $70.10. The nearest value level for Brent crude oil is $78.73.

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