Oil Price Fundamental Daily Forecast – Pressured After API Reports Huge Inventory Build, EIA Data On-Tap

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly lower early Wednesday, but inside yesterday’s range, suggesting investors may be taking a moment to digest yesterday’s violent move to the downside. Nonetheless, traders are a little shy about playing the upside in the wake of a huge U.S. inventory build.

At 0705 GMT, December WTI Crude Oil is trading $66.29, down $0.14 or -0.21% and January Brent Crude Oil is at $76.03, down $0.12 or -0.16%.

While a steep decline in U.S. equity markets contributed to some of the weakness on Tuesday, the markets were initially driven lower after Saudi Energy Minister Khalid al-Falih said that despite expected supply disruptions from U.S. sanctions against Iran that kick in on November 4, Saudi Arabia would step up to “meet any demand that materializes to ensure customers are satisfied”.

There was one potentially bullish development. In China, Iran’s biggest oil buyer, the Bank of Kunlun is set to stop handling payments from the Islamic Republic next month, appearing to bow to U.S. pressure. This means Chinese oil firms will need to find alternatives to Iran’s crude. It also potentially further reduces supply.

In other news, the American Petroleum Institute (API) reported a huge build of 9.88 million barrels of United States crude oil inventories for the week-ending October 19. This was much higher than the 3.694 million barrel forecast

The API also reported a draw in gasoline inventories as well for the week-ending October 19 in the amount of 2.8 million barrels, versus a forecast draw of 1.878 million barrels during the same time period.

Distillate inventories were down this week by 2.4 million barrels, compared to a larger expected draw of 1.927 million barrels.

Forecast

Barring any surprise supply disruptions, or renewed stock market volatility, the direction of the crude oil market today will likely be dictated by trader reaction to the U.S. Energy Information Administration’s weekly inventories report. It is expected to show a build of about 3.6 million barrels. This estimate may increase, however, as traders are likely to make upward adjustments ahead of the report in the wake of yesterday’s API data.