Oil Price Fundamental Daily Forecast – Pressured by U.S. Production Concerns, OPEC+ Output Hike

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed shortly before the release of the latest inventories data from the U.S. Energy Information Administration (EIA) weekly inventories report.

We’ll be surprised if this report has any impact of the price action since it’s stale data from the week-ending August 27. Furthermore, the impact of Hurricane Ida has likely skewed the data for weeks. So traders won’t actually get a true read on crude oil and gasoline supply/demand until late September or early October.

At 13:28 GMT, October WTI crude oil is trading $67.52, down $0.98 or -1.43% and November Brent crude oil is at $70.67, down $0.96 or -1.34%.

In the meantime, traders will shift their focus to today’s OPEC+ meeting at which producers are expected to stick to a plan to add 400,000 barrels per day (bpd) each month to the end of December.

Due to the impact of Hurricane Ida, U.S. crude prices are expected to remain under pressure as offshore oil and gas production in the Gulf of Mexico gradually recovers, though refinery operations are likely to take longer to return to normal.

API Reports Larger-Than-Expected Crude Draw

The American Petroleum Institute (API) on Tuesday reported a large draw in crude oil inventories of 4.045 million barrels for the week-ending August 27, bringing the total 2021 crude draw so far to more than 62 million barrels, using API data. Traders were looking for a draw of 2.833 million barrels for the week.

The API also reported a build in gasoline inventories of 2.711 million barrels for the week-ending August 27 – compared to the previous week’s 985,000-barrel draw. Distillate stocks saw a decrease in inventories this week of 1.961 million barrels for the week, compared to last week’s 245,000-barrel decrease.

Cushing inventories rose this week by 2.128 million barrels, after last week’s 485,000-barrel decrease. Finally, while U.S. crude oil stocks continue their decline, the U.S. oil production stayed at 11.4 million bpd for the second week in a row.

Short-Term Outlook

It’s hard to get a bullish reading on crude oil at this time because of the uncertainty over when production facilities will return to normal. When there is uncertainty, traders become reluctant to buy and some start liquidating long positions.

The market is also facing several headwinds including the possibility of a stronger U.S. Dollar if Friday’s Non-Farm Payrolls report comes in stronger than expected. This could weigh on foreign demand for dollar-denominated crude.

The extra supply from OPEC+ could also cap gains. Although this may have been priced into the market for weeks, some traders went long on the notion that the producer group would refrain from increasing production due to coronavirus concerns.

With WTI currently trading inside a 50% to 61.8% retracement zone, we’re looking for a downside bias to develop on a sustained move under $67.63 and for an upside bias on a sustained move over $69.02.