Oil Price Fundamental Daily Forecast – Price Action Will Be Dictated by Today’s EIA Inventories Report

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher early Wednesday with the latter surging to the upside on concerns over supply. U.S. crude is trading firm, but the buying is tentative ahead of today’s weekly government inventories report.

At 0721 GMT, October WTI crude oil is trading $69.01, up $0.14 or +0.20% and November Brent is at $76.85, up $0.64 or +0.84%.

Supply concerns are being raised by looming sanctions against Iran, which are expected to take effect in November. However, current data shows many crude buyers have already reduced orders from OPEC’s third-biggest producer.

According to Thomson Reuters Eikon, Iran’s August crude oil and condensate loadings are estimated at 2.06 million barrels per day (bpd), versus a peak of 3.09 million bpd in April. This despite Iran offering steep discounts for its oil.

Plunging output in Venezuela is also helping to underpin prices. According to CNBC, Venezuelan state-run firm PDVSA said on Tuesday it had signed a $430 million investment agreement to increase production by 640,000 bpd at 14 oil fields, valuing the investment at $430 million. However, given the country’s political and economic instability, many analysts doubted whether this investment would go through.

Additionally, Libya and Nigeria are also facing potential supply issues.

Rising Supply Could Limit Gains

A report from Bank of America Merrill Lynch, global supply could climb towards year-end because of increased non-OPEC production. The bank said new production in Canada, Brazil and the United States “should provide a substantial boost to non-OPEC supplies” during the second-half of the year “taming upside pressures on Brent crude oil prices”.

In other news, the American Petroleum Institute (API) reported a surprise oil inventory build of 38,000 barrels of US crude oil inventories for the week-ending August 25, compared to analyst expectations of a draw of 522,000 barrels.

The API also reported a build in gasoline inventories for the week-ending August 25 in the amount of 21,000 barrels. Analysts predicted a much larger build of 370,000 barrels.

Distillate inventories were up this week by 982,000 barrels, compared to an expected build of 1.592 million barrels.

Forecast

The price action this week has been driven by concerns over supply. It seems that traders have forgotten about any demand issues that were raised two weeks ago. With both WTI and Brent breaking out above technical resistance levels, upside momentum is building. Look for the uptrend to continue unless a news event triggers a reversal to the downside and a shift in investor sentiment.

Today’s U.S. Energy Information Administration report on crude oil inventories, due to be released at 1430 GMT, could be such an event if the actual numbers miss the estimate. Traders are looking for a draw of about 700,000 million barrels. A surprise build could reverse today’s early upside bias.