Oil Price Fundamental Daily Forecast – Supported by Bullish API Data, EIA Report Expected to Show 1.6M Draw

U.S. West Texas Intermediate and international-benchmark Brent Crude Oil futures are trading higher early Wednesday. Both markets have taken back all of last Wednesday’s steep decline that was fueled by talk of lower demand and an unexpected U.S. inventories build.

At 0651 GMT, October WTI crude oil is trading $66.21, up $0.38 or +0.58% and October Brent crude oil is at $73.01, up $0.38 or +0.52%.

Today’s early rally is being underpinned by a drop in U.S. crude inventories and a weaker U.S. Dollar. Renewed concerns over a potential shortfall of Iranian oil starting in November when U.S. sanctions kick in are also driving prices higher.

According to the American Petroleum Institute (API), U.S. crude inventories fell by 5.2 million barrels in the week to August 17, to 405.6 million barrels, ahead of analysts’ forecasts for a fall of 1.5 million barrels.

The API also reported a draw in gasoline inventories for the week-ending August 17 in the amount of 930,000 barrels. Analysts had predicted a small draw of 488,000 barrels.

Distillate inventories were up all week by 1.8 million barrels, compared to an expected build of 1.463 million barrels. Inventories at the Cushing, Oklahoma futures hub increased slightly this week by 195,000 barrels.

Forecast

The plunge in API inventories and worries that Iran’s exports would soon wane in the face of additional sanctions that are set to go into effect in November are being credited for this week’s price surge, but a weaker U.S. Dollar should get some of the credit since it tends to lead to increased foreign demand for U.S. crude oil.

Talk of weaker demand has dissipated since financial conditions in Turkey have stabilized. Additionally, the markets have showed almost no reaction to the news that the U.S. is planning to release about 11 million barrels of oil from its strategic reserve in November.

The fundamentals may be softening, but the technical picture is still bearish with both the WTI and Brent contracts in downtrends on the daily chart. The longer-term weekly and monthly charts are still bullish.

Today’s U.S. Energy Information Administration’s weekly inventories report, due to be released at 1430 GMT, is likely to set the tone the rest of the day. Traders are looking for a 1.6 million barrel draw. A bigger than expected draw could spike prices higher. A supply build will be unexpected and therefore bearish.