Oil Price Fundamental Daily Forecast – Is the Long-awaited Rebalancing Taking Place?

U.S. West Texas Intermediate and international-benchmark Brent crude oil rallied nearly 2% to an 8-week high on Wednesday, driven by a big drop in U.S. crude stockpiles.

September WTI crude oil settled at $48.75, up $0.86 or 1.80%. October Brent crude ended the session at $51.10, up $0.74 or +1.47%.

Late Tuesday, industry group the American Petroleum Institute reported U.S. crude stockpiles fell by 10.2 million barrels the week-ending July 21. This helped provide support early in the session.

On Wednesday, the U.S. Energy Information Administration reported a 7.2 million barrel drop in inventories last week. Investors were looking for a 3.3 million barrel draw. The draw was the fourth consecutive drop, indicating a trend and giving support to the market.

Gasoline inventories fell by 1 million barrels. Analysts were looking for a 614,000-barrel drop. Distillate stockpiles declined by 1.9 million barrels, versus expectations for a 453,000-barrel drawdown.

Forecast

This week’s intense rally has put WTI crude oil on the strong side of a key retracement zone at $48.52 to $47.33. Upside momentum will continue to strengthen as long as the market holds above this area.

Bullish investors are supporting the market because they believe the long-awaited rebalancing is taking place in the oil market. They are basing on the rally on Saudi Arabia’s decision to limit oil exports to 6.6 million barrels per day (bpd) in August, and the four weeks of drawdowns in U.S. oil stocks.

Traders are also saying the combination of higher exports from the United States, a marginal decline in oil output and a rise in refinery utilization rate were also behind the price rise. Some have also added the geopolitical risk in Venezuela to the bullish side of the equation.

There are also skeptics out there who believe the upside will be limited because the U.S. crude and gasoline stock piles remain above their five-year averages, and this can limit price gains.

Our primary concern today will be WTI trader reaction to $48.52 and Brent trader reaction to $51.30. In order to sustain the rally, investors must be willing to continue to buy enough crude oil to hold above these levels. If they fail to do so then the market will fall into a range.