Oil Price Fundamental Daily Forecast – Short-Sellers Using API Data as Excuse to Book Profits

After hitting a two-month low earlier in the session on Tuesday, U.S. West Texas Intermediate and international-benchmark Brent crude oil reversed course to close higher.

July WTI crude oil settled at $65.52, up $0.77 or +1.18% and August Brent crude oil finished at $75.38, up $0.09 or +0.12%.

Prices were under pressure early due to concerns over rising U.S. production and fear of an increase in OPEC-led output. However, short-sellers and profit-takers covered positions aggressively late in the day after the American Petroleum Institute reported a larger-than-expected drawdown in U.S. crude inventories.

The spread tightened between Brent crude oil and WTI crude oil because the news was bullish for U.S. oil while the fundamental outlook for Brent oil remained the same.

Forecast

Technical and fundamental factors are behind Wednesday’s early rise in crude oil. Yesterday’s lower-low, higher-close formed a potentially bullish chart pattern. While it probably doesn’t mean the trend is getting ready to turn up, it is signaling that the buying is greater than the selling at current price levels and this may be enough to fuel a 2 to 3 day counter-trend rally.

Although there may be some speculative bottom-pickers supporting the markets today, most of the buying is likely being driven by short-covering and profit-taking. Once this short-term correction is complete, I expect short-sellers to re-emerge to take advantage of more favorable prices.

With the major OPEC meeting set for June 22, investors will have to get used to this type of trading over the next two weeks. Like I said in yesterday’s report, nobody likes to sell weakness. They’d rather sell a rally and the short-covering rally taking place today and over the next few days may be exactly what the bearish traders have been waiting for, so don’t get too excited about the rally.

A good rule of thumb is to use target exits when trading against the main trend.

In other news, the American Petroleum Institute (API) reported a draw of 2.028 million barrels of U.S. crude oil inventories for the week ending June 1.This was larger than the 1.824 million barrel forecast.

The API also reported a large buildup in gasoline inventories for the week-ending June 1 in the amount of 3.759 million barrels. Analysts had expected a much smaller build of 587,000 barrels.

Distillate inventories drew down 871,000 barrels, compared to an expected build of 784,000.

So you can see from the report that the crude number was somewhat bullish and the gasoline number was somewhat bearish. This should lead to limited gains.

Today’s U.S. Energy Information Administration’s weekly inventories report is expected to show a draw of about 2 million barrels.