Oil Price Fundamental Daily Forecast – Prices Surge on API Report, but Will EIA Confirm the Numbers?

Crude oil futures extended yesterday’s gains on Tuesday to finish at a seven-week high. Early in the session, the market was supported by bullish news from the oil ministers’ meeting in St. Petersburg, Russia on Monday.

September West Texas Intermediate crude oil settled at $47.89, up $1.55 or +3.34% and October Brent crude oil closed at $50.36, up $1.54 or +3.15%.

At the meeting of OPEC and non-OPEC leaders, Saudi Energy Minister Khalid al-Falih said his country would limit its crude exports to 6.6 million barrels per day in August, almost 1 million bpd below levels a year ago.

Additionally, Nigeria voluntarily agreed to join the deal by capping or cutting its output from 1.8 million bpd, once it stabilizes at that level.

Late in the session, prices were boosted by an American Petroleum Institute report that showed a sharp drop in crude oil stocks. Gasoline inventories rose, but distillate stocks decreased.

 Forecast

WTI crude oil is currently testing a possible resistance level at $48.52, however, it is also the trigger point for another acceleration to the upside with $49.75 the next likely target. The upside momentum will remain strong as long as the futures contract remains above the 50% level at $47.33.

The key target level for Brent crude oil is $51.30. This is also a trigger point for an upside breakout. Falling back below $50.10 will indicate the presence of sellers.

The API report indicates that U.S. crude stocks fell sharply last week because refineries boosted output. The report showed crude inventories fell by 10.23 million barrels in the week-ending July 21 to 487, compared with expectations for a decrease of 2.6 million barrels.

Gasoline inventories however bucked the trend with a 1.903-million-barrel build. Analysts were looking for a draw of 1.25 million barrels. Distillate inventories fell this week, by 111,000 barrels, compared to analyst expectations of an 800,000-barrel draw.

Today’s U.S. Energy Information Administration’s weekly inventories report will determine the direction of the market today. The early estimate is for a 3.3 million draw. Traders are going to want to see a bigger number due to the drop in the API report.

In my opinion, the EIA report has to exceed the 3.3 million estimate or prices will decline into the close. If it does come in greater than expected then look for another surge in prices.