Oil Price Fundamental Daily Forecast – Lower After API Report Shows Surprise Build

Profit-taking and quarterly position-squaring helped crude oil prices surge nearly 2 percent on Tuesday. Most of the price action was driven by short-covering with some by aggressive counter-trend buyers playing for a bullish U.S. Energy Information Administration (EIA) inventories report on Wednesday.

August West Texas Intermediate crude oil futures settled at $44.24, up $0.86 or +1.98% and international benchmark September Brent crude oil finished at $46.92, up $0.88 or +1.91%.

A weak U.S. Dollar also encouraged some shorts to cover their positions because this typically leads to increased demand from foreigners. Gains were capped, however, by reports that Libya increased its crude oil production to 935,000 per day, up from an average of 885,000 barrels per day last week.

Forecast

Crude oil could be under pressure overnight and ahead of Wednesday’s EIA inventories report as investors are reacting negatively to preliminary data that suggested U.S. crude stockpiles unexpectedly rose last week.

Late Tuesday, the American Petroleum Institute reported a surprise 851,000 barrel increase in U.S. crude inventories in the week-ended June 23. Traders were looking for a drawdown of about 3.25 million barrels according to S&P Global Platts. A Reuters survey showed analysts anticipated a 2.5 million barrel drop.

The API report also showed that U.S. stockpiles at the Cushing, Oklahoma futures delivery hub for the West Texas Intermediate contract fell by 678,000 barrels.

According to the API, gasoline inventories also rose the week-ended June 23 by 1.351 million barrels. This was blamed on refiners who continue to produce despite reports of low demand. Traders were looking for a 900,000-barrel draw. Distillates inventories also rose 678,000 barrels.

Given the short-term rally from $42.05 to $44.44, we’re likely to see a minimum break back to $43.25 today.

Wednesday’s EIA inventories report is expected to show a 2.1 million barrel draw down. However, this forecast could change due to the results presented by the API.