Oil Price Fundamental Daily Forecast – Rate Cut Optimism? Traders Betting on Another Supply Decline

CNBC is saying that U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are getting support from optimism that a Federal Reserve rate cut should support economic and fuel demand growth, but I’m not on the same page. I think that in the long-run a series of rate cuts could be beneficial for the economy and fuel demand, but in the short-run, I think investors are counting on another steep weekly draw down in U.S. stockpiles. That’s what’s driving the price action today in my opinion.

At 09:27 GMT, September WTI crude oil is trading $57.30, up $0.43 or +0.77% and October Brent crude oil is at $64.10, up $0.48 or +0.75%.

Another reason why I doubt it’s optimism over the widely expected Fed rate cut driving prices higher is because if you look at the stock market, gold, the U.S. Dollar and Treasurys, the cut has been priced in for weeks. Did the oil traders suddenly become aware of the nearly 100% chance of a rate cut?

Watch the API and EIA Reports This Week

Last week, the American Petroleum Institute (API) reported a huge crude oil inventory draw of 10.961 million barrels for the week-ending July 18. After that draw, the largest of the year, the net build is now just 1.20 million barrels for the 30-week reporting period so far this year, using API data.

The U.S. Energy Information Administration followed the API with a report that showed U.S. stockpiles fell by 10.8 million barrels in the week to July 19.

Based on these numbers, I believe traders are betting on another huge draw down. The current estimate calls for a 2.5 million barrel draw down. Anything bigger could launch prices higher, but we’re not going to know until 20:30 GMT on Tuesday with the release of the latest API report and 14:30 GMT on Wednesday when the EIA releases its numbers.

The financial markets are pretty confident the Fed will cut by 25-basis points. Crude oil markets don’t know for sure what the reports will show and given the nature of these reports to hit or miss, traders should look for heightened volatility this week.