Oil Price Fundamental Daily Forecast – Strong Demand from China Eases Oversupply Concerns

U.S. West Texas and internationally-favored Brent crude oil prices retreated from earlier highs on Wednesday after U.S. government data showed U.S. crude supply fell more than expected the week-ended July 7 as imports declined and drillers continued to produce more.

On Wednesday, September WTI crude oil settled at $45.66, up $0.43 or +0.95% and October Brent crude oil ended the session at $48.03, up $0.22 or +0.46%.

According to the U.S. Energy Information Administration, crude inventories declined by 7.6 million barrels last week, compared with analysts’ forecasts for a decrease of 2.9 million barrels.

Gasoline stocks also fell more than expected. The EIA report showed inventories fell by 1.6 million barrels, compared with analyst’ expectations for a 1.1 million barrel gain. Distillate stockpiles rose by 3.1 million barrels, versus expectations for a 1.1 million barrels increase.

The EIA report also showed that U.S. oil production inched higher by 59,000 barrels a day to nearly 9.4 million barrels a day.

In other news, OPEC said its oil output rose by 393,000 bpd in June to 32.611 million bpd led by a rebound in Nigeria and Libya, plus a few extra barrels from Saudi Arabia and Iraq.

A Saudi industry source also said the country planned to reduce shipments in August by more than 600,000 bpd, taking exports for that month to their lowest this year.

Finally, OPEC forecast the world will need 32.20 million bpd of crude from its members in 2018, down 60,000 bpd from this year.

Forecast

Traders have had to react to mixed data this week so this information, combined with the chart pattern, suggests a sideways trade is likely today.

On the upside, September WTI crude oil is limited by resistance at $47.33. On the downside, the key support zone is $44.86 to $44.25. In between is a technical retracement zone at $45.64 to $46.07. This zone could act like a pivot area today.

On the bullish side, the market is being supported by EIA remarks from earlier in the week calling for U.S. crude oil production to rise by less than previously forecast next year due to a lower price outlook. Saudi Arabia’s threat to reduce exports in August is also seen as a potentially bullish development. Early Thursday, reports of strong demand from China eased concerns of an ongoing fuel supply overhang.

Limiting the upside is rising U.S. production, steady growth in producing oil rigs and rising production in Libya and Nigeria.

Unless there is surprise news, I expect the WTI futures contract to hover around $45.64 to $46.07 most of the session.