Oil Price Fundamental Daily Forecast – Prices Boosted by Bullish EIA Data; Needs Help from OPEC to Sustain Rally

U.S. West Texas Intermediate and international-benchmark Brent crude oil jumped more than 1.50% on Wednesday after a government inventories report showed a larger weekly draw than forecast. A drop in gasoline stocks and a surprise draw in distillate inventories also contributed to the price rise.

September WTI crude oil settled at $47.32, up $0.73 or 1.57% and October Brent crude oil closed at $49.93, up $0.85 or +1.73%.

According to the U.S. Energy Information Administration (EIA), U.S. crude stocks fell 4.7 million barrels during the week-ending July 14. Traders were expecting a 3.2 million draw.

The EIA also said gasoline stocks declined 4.4 million barrels and distillate stocks decreased 2.1 million barrels. Traders had forecast a 0.7 million barrel draw in gasoline and a 1.2 million barrel build in distillates.

The bullish news sent U.S. distillate futures up 2.8 percent and gasoline futures 3.5 percent higher. This boosted the products crack spread, a measure of refinery margins, to its highest since November 2016.

The drawdown in inventories occurred even though the EIA also said U.S. production climbed to 9.43 million barrels per day (bpd), its highest since 2015.

Forecast

The strong rally in WTI crude oil on Wednesday has put the market in a position to take out the July 5 main top at $47.45. The Brent target is $50.11. Taking out both of these levels will signal a resumption of the uptrend that had been losing momentum while drifting sideways for about two weeks.

Taking out both tops could trigger a further rally if the move is accompanied by rising volume. This will indicate real buyers are contributing to the rally.

The next major upside target for the WTI contract is $48.52. The Brent contract’s target is $51.30.

Although the EIA report is fueling the buying, in order to get over the top, crude prices may have to get some help from OPEC. Talk of capping Nigerian and Libyan output may prove to be the bullish news this market needs to sustain the rally. Further reductions in Saudi Arabian exports in August will be another bullish factor that could spike prices higher.