Oil Price Fundamental Daily Forecast – Prices Firm After API Reports Drop in U.S. Inventories

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed lower on Tuesday as investors continued to express concerns over a possible increase in OPEC crude supply. Also pressuring prices were the escalating trade dispute between the United States and China.

August WTI crude oil settled at $65.07, down $078 or -1.20 percent and August Brent crude oil finished the session at $74.97, down $0.37 or -0.50 percent.

WTI crude oil was hit the hardest on Tuesday, mostly due to the sharp break in global equity markets. This move was fueled by the U.S. threat of additional tariffs on China, and Beijing’s subsequent threat of retaliation. One such threat is a tariff on U.S. crude oil imports.

Brent crude oil finished lower on Tuesday, but was still able to outperform the WTI futures contract. This helped drive the spread between Brent and WTI back above $10 per barrel. Also helping to support Brent was a supply disruption in Libya which could take as much as 400,000 barrels per day of output off the market.

Forecast

Crude oil is trading higher early Wednesday, underpinned by a drop in U.S. commercial crude inventories reported by a private industry group.

At 0441 GMT, August WTI crude oil is trading $65.13, up $0.23 or +0.35% and August Brent crude oil is at $75.26, up $0.18 or +0.24%.

Late Tuesday, the American Petroleum Institute (API) reported a draw of 3.016 million barrels in crude oil inventories for the week-ending June 15. Analysts were looking for a draw of about 1.898 million barrels.

The API also reported a surprise build in gasoline inventories for the week-ending June 15 in the amount of 2.113 million barrels. Analysts were expecting a build of about 188,000 barrels.

Distillate inventories also surprised traders, posting a build of 750,000 for the week-ending June 15, compared to an expected draw of 164,000.

Inventories at the Cushing, Oklahoma futures delivery hub fell again last week by 1.594 million barrels.

Today’s U.S. Energy Information Administration’s weekly inventories report is expected to show a 2.1 million barrel draw down.

We’re expecting to see heightened volatility until the end of the week when OPEC makes its decision on whether to increase output and by how much. The major players are on the sidelines so the price action could be manipulated by small traders with big orders.

Monday’s technical reversal bottoms remain intact so there is a slight upside bias in the market. Traders are pricing in a hike in output, but the size and the timing of the move is uncertain. Furthermore, Saudi Arabia and Russia, who favor increased production, are facing resistance from Venezuela, Iran and Iraq, who oppose the move.