Oil Price Fundamental Daily Forecast – OPEC Talking About Extending Production Cuts; API Reports Unexpected Inventories Draw

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Wednesday, but retreating from earlier highs. Today’s earlier strength was fueled by a response by OPEC to U.S. President Donald Trump’s pressure on the cartel to stop artificially tightening markets. The markets received an additional boost from a friendly private inventories report.

At 09:21 GMT, April WTI crude oil is trading $56.02, up $0.52 or +0.91%. May Brent is trading $65.72, up $0.36 or +0.47%.

On Monday, President Trump tweeted, “Oil prices getting too high, OPEC, please relax and take it easy. World cannot take a price hike – fragile!”

OPEC Responds to Trump’s Complaints

On Tuesday, Saudi Energy Minister Khalid al-Falih told CNBC, “We are taking it easy. The 25 countries are taking a very slow and measured approach. Just as the second half last year proved, we are interested in market stability first and foremost.”

“We listen to the honorable president, and hear his concern about consumers and assure everybody, whether it’s him or developing country leaders, that we are as focused on the interests of the global economy and consumers around the world as we are focused on the interests of producers,” al-Falih said. The U.S. became the world’s largest oil producer in late 2018.

OPEC Talks Production Cut Extension

The current OPEC-led production cuts which began on January 1 are set to expire in June. However, the group is already talking about extending the strategy.

“We remain flexible, I am leaning toward the likelihood of an extension in the second half (of 2019), but that’s not automatic,” he said. “If we find out the fundamentals are tightening, by June you can bet that I will be, just like we did last year, encouraging my colleagues within the OPEC plus to ease the voluntary limits we set on ourselves and to increase supplies to ensure that there is no unnecessary tightening in the market.”

API Reports Surprise Draw

The American Petroleum Institute (API) reported a surprise draw in crude oil inventory of 4.2 million barrels for the week-ending February 22. Traders were looking for a build of 2.842 million barrels.

The API also reported a draw in gasoline inventories for the same time period in the amount of 3.8 million barrels. Analysts were looking for a draw in gasoline inventories of 1.686 million barrels for the week.

Distillate inventories increased this week by 400,000 barrels, compared to an expected draw of 1.951 million barrels. Crude oil inventories at the Cushing, Oklahoma facility grew by 2.0 million barrels for the week.

Daily Forecast

Today’s price action suggests traders may have discounted Trump’s attempt to pressure OPEC into relaxing its production. The crude oil markets are expected to remain underpinned by the on-going production cuts, and the U.S. sanctions against Iran and Venezuela. However, rising U.S. production is expected to keep a lid on the rally.

There is some tightness in supply, but not enough to launch a huge rally. However, with OPEC likely to extend the cuts beyond the original June cut-off date, prices are likely to remain supported.

Demand continues to remain a major concern, but a timely U.S.-China trade deal could create some optimism about increased demand later in the year.

At 15:30 GMT, the U.S. Energy Information Administration will release its weekly inventories report. It is expected to show a build of 2.8 million barrels. However, it may actually show a draw, given the results of the API report.