Oil Price Fundamental Daily Forecast – Rebalancing of Market Is Underway

U.S. West Texas Intermediate and international-benchmark Brent crude oil rallied sharply higher on Wednesday in response to a bullish report from the International Energy Agency (IEA).

November WTI crude oil settled at $49.75, up $1.00 or +2.05%. December Brent crude oil finished the session at $54.89, up $0.86 or +1.59%.

According to the IEA, global oil demand is set to accelerate faster than anticipated this year. Strong second-quarter demand has buoyed oil markets, which have been struggling to rebalance as a supply glut has weighed heavily on prices, the IEA said in its September report released on Wednesday.

In other news, U.S. crude stockpiles rose sharply last week and gasoline inventories fell the most on record as refineries continued to be hampered by damage from Hurricane Harvey, the Energy Information Administration said on Wednesday.

Crude inventories rose 5.9 million barrels, compared with analysts’ expectations for an increase of 3.2 million barrels.

The EIA also said refinery utilization rates fell by 2 percentage points to 77.7 percent, the lowest rate since 2008, as crude runs fell 394,000 bpd.

Gasoline stocks fell 8.4 million barrels, the largest draw on record. Analysts were looking for a 2.1 million-barrel drop.

Distillate stockpiles, fell 3.2 million barrels, versus expectations for a 1.5 million-barrel drop, the EIA data showed.

Finally, U.S. crude imports fell last week by 1.2 million bpd to 5.7 million bpd, the lowest on record. U.S. crude exports fell to 6.5 million bpd, the lowest since 2014, when crude export restrictions were first relaxed.

Forecast

Traders know that the EIA report was a hurricane-altered report so I believe Wednesday’s rally was primary fueled by trader reaction to the IEA’s bullish outlook.

With the IEA growing more confident that shifting fundamentals are enabling demand to catch up with supply, it looks like investors are also gaining confidence based on yesterday’s price action. Yesterday was the first time in a while where investors actually looked confident buying strength.

The raw data in the IEA report strongly indicates that a rebalancing of the market is underway. The IEA increased its growth estimate for the year to 1.6 mb/d, or 1.7 percent. For 2018, the IEA is predicting growth of 1.4 mb/d, or 1.4 percent.

In August, the IEA has anticipated annual growth would hit 1.5 mb/d, again an increase on July’s 1.4 mb/d forecast.

We should have a firm upside tone as long as November WTI crude oil remains above $48.38. We could see an acceleration to the upside today if $49.84 is taken out with conviction. This could generate the momentum needed to challenge $50.62.

Taking out $50.62 will change the main trend to up on the weekly chart for the first time this year.