Oil Price Fundamental Daily Forecast – OPEC+ Decision on Production Cut Tapering Sets the Tone

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Wednesday, boosted by a sharp drop in U.S. crude inventories and optimism about swift economic growth supported by encouraging results from a coronavirus vaccine study. Gains are likely being limited as traders await more direction from a meeting later in the day on the future level of production by OPEC and its allies.

At 10:45 GMT, September WTI crude oil is trading $41.01, up $0.46 or +1.13% and September Brent crude oil is at $43.31, up $0.41 or +0.96%.

American Petroleum Institute Weekly Inventories Report

The API reported late Tuesday a huge draw in crude oil inventories of 8.322 million barrels for the week-ending July 10. Analysts were looking for a smaller draw of 2.275 million barrels.

The API also reported a draw of 3.611 million barrels of gasoline for the week-ending July 10. Analysts forecast a 900,000-barrel draw for the week.

Distillate inventories were up by 3.03 million barrels for the week, while Cushing inventories saw a build of 548,000 barrels.

Supply Moves to Forefront as OPEC Joint Ministerial Monitoring Committee Meets

Key members of OPEC and its allies, collectively known as OPEC+, are set to decide whether to extend output cuts of 9.7 million barrels per day (bpd) that end in July or ease them to 7.7 million bpd.

In June, OPEC and its allies delivered compliance of 107% with their greed oil output cuts, an OPEC+ source said on Tuesday.

Meanwhile, OPEC said in its monthly report that global oil demand would soar by a record 7 million bpd in 2021 as the global economy recovers from the coronavirus pandemic although it would stay below 2019 levels.

Daily Forecast

The decision by OPEC+ will set the tone of the market later on Wednesday. The price action suggests traders are betting that OPEC+ will decide against decreasing its level of production cuts as of August 1. If they decide to decrease their level of production cuts, and thereby, potentially slowing the inventory drawdown, then prices are likely to fall sharply.

Yesterday’s API report is a sign of improving demand despite the coronavirus pandemic. Later today at 14:30 GMT, official data from the U.S. Energy Information Administration (EIA) is expected to show a drawdown of about 1.3-million barrels. Prices are likely to rise if the EIA report matches or exceeds the bullish numbers in the API report.

“OPEC+ decision on production cut tapering will set the tone for the oil market,” ANZ Research said in a note.