Oil Price Fundamental Daily Forecast – Prices Rise after API Reports Gasoline, Distillate Draws

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher early Thursday, hovering just slightly below seven-year highs reached earlier in the week. The catalyst behind today’s strength is a weekly inventories report that showed a bigger-than-expected draw in U.S. gasoline and distillate stocks. A new forecast calling for lower U.S. crude output is also providing support.

At 06:34 GMT, December WTI crude oil futures are trading $80.50, up $0.68 or +0.85%. December Brent crude oil is at $83.90, up $0.72 or +0.87%.

Despite a two-day setback, the market remains well-supported by rising demand expectations. One hope for the bulls is that soaring natural gas prices would drive power generators to switch from natural gas to oil to meet heating demand.

US 2021 Crude Output Seen Falling More than Previously Forecast – EIA

U.S. crude oil output is going to fall more than expected previously in 2021 and bounce back in 2022, according to a monthly government report released on Wednesday.

Crude output will drop 260,000 barrels per day to 11.02 million bpd this year, and then rebound to 11.73 million bpd in 2022, the U.S. Energy Information Administration said. In its previous forecast, the statistical arm of the Department of Energy had forecast a 200,000 bpd drop in 2021.

The agency cut its output forecast for the third and fourth quarters of 2021 to arrive at the lower number for the year.

API Reports Large Crude Build, but Unexpected Gasoline, Distillate Draw

The American Petroleum Institute (API) on Tuesday reported another week of crude oil inventory builds. This time, the build is extra-large, at 5.213 million barrels for the week ending October 8, as U.S. crude inventories sit 66 million barrels below beginning of the year levels, according to OilPrice.com. Analysts were looking for a build of 140,000 barrels for the week.

The API also reported a draw in gasoline inventories of 4.575 million barrels for the week ending October 8, compared to the previous week’s 3.682-million-barrel build.

Distillate inventories saw a decrease in inventories of 2.707 barrels for the week, compared to last week’s 345,000-barrel increase.

Cushing inventories saw a draw this week, adding 2.275 million barrels to the total inventory, after last week’s 1.999-million-barrel increase.

Daily Forecast

The upside momentum is building again which could mean a new seven-year high later in the session.

I don’t think the Biden Administration’s pressure on U.S. oil and gas producers to bring down rising fuel costs is going to work because the energy crunch is a global issue. I find it funny that when the Biden Administration is looking to blame someone for global warming, they point their fingers at the oil industry and our reliance on petroleum products. But when prices move higher, they tell them to produce more gasoline.

I still stand by my forecast for triple-digit crude in late 2021 or early 2022 if power generators continue to demand oil instead of natural gas. I’ll admit this is still a wild-card prediction but if winter comes early to Europe, prices could rise rapidly.

At 15:00 GMT, the U.S. Energy Information Administration (EIA) is expected to report a crude oil build of 1.1 million barrels. However, given the API’s reported draw in gasoline and distillates, traders will be focusing on EIA product inventories. Prices could spike higher if gasoline and distillate supplies fall.