Oil Price Fundamental Daily Forecast – Prices Rise as Traders Shrug Off API Build Ahead of EIA Report

U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading higher on Wednesday shortly before the release of the U.S. Energy Information Administration (EIA) weekly inventories report at 14:30 GMT.

The markets are extending Tuesday’s gains as improved risk appetite provided support despite data showing an unexpected rise in U.S. oil inventories last week and a weaker demand outlook due to rising COVID-19 infections. This basically means Monday’s sell-off was so excessive that traders decided to shrug off the rise in crude inventories.

At 12:13 GMT, September WTI crude oil is at $68.20, up $1.00 or +1.49% and September Brent crude oil is at $70.42, up $1.07 or +1.54%.

As I wrote on Tuesday, traders are trying to find a balance point in the market given the OPEC+ decision to increase production and fresh demand destruction expectations due to the resurgence of the virus.

We may have found the value zone on Monday with aggressive buyers stepping in to buy cheap oil. Now that the market appears to be stabilizing, traders have to find that area on the upside where crude oil is too expensive. This is one of the reasons why I think we’re still in the “sell the rally” mode.

It’s going to be difficult to take out the July high unless wild speculators decide to drive prices to the moon. Since that top was reached, OPEC+ has announced increased production and economists have priced in lower global economic growth due to the rising number of COVID-19 Delta variant cases.

Rising supply and lower demand is the recipe for lower prices. We’ve seen how far sellers were willing to take the market down with some help from a plunge in equities. Now we expect to see a rally with limited upside potential. Our work sees September WTI crude oil possibly reaching $69.90 to $71.85 before the sellers re-emerge and September Brent crude oil perhaps reaching $72.63 to $73.85.

American Petroleum Institute Weekly Inventories Report

The API on Tuesday reported a build crude oil inventories of 806,000 barrels for the week ending July 16, bringing the total 2021 crude draw so far to a hair under 50 million barrels, using API data. Analysts had expected a loss of 4.333 million barrels for the week.

The API also reported a build in gasoline inventories of 3.307-million barrels for the week ending July 16 – compared to the previous week’s 1.545-million barrel draw.

Distillate stocks saw a decrease in inventories this week of 1.225 million barrels for the week to counter last week’s 3.699 million-barrel increase.

Daily Forecast

At 14:30 GMT, the EIA is scheduled to release its weekly crude oil inventories report. Crude oil stocks are expected to have declined by 4.6 million barrels.

We could see a similar reaction in crude oil that we are seeing to the API data if the EIA reports an unexpected build. Traders seem to be more interested in getting prices back to where they belong rather than this week’s inventories data. The markets will get support, however, if the EIA concurs with the estimate.