Oil Price Fundamental Daily Forecast – Supported Early in Session by Expectations of Further Supply Tightening

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday amid expectations that another draw in U.S. crude inventories would further tighten supply. Buyers are being cautious and gains are being capped, however, over fears the spreading COVID-19 variant could weigh on demand.

At 08:31 GMT, September WTI crude oil futures are trading $74.00, up $0.56 or +0.76% and September Brent crude oil futures are at $75.77, up $0.61 or +0.81%.

Meanwhile, sources have told Reuters that OPEC and its allies, known as OPEC+, have yet to make progress in resolving the impasse that shut down production hike discussions a week ago. The issue has actually helped underpin prices because it extends the current level of output cuts. It will become a bearish issue if some in the group decide to abandon production cuts altogether.

Early Focus on US Crude, Gasoline Inventories

Early in the week, optimism about tight supply and declining U.S. stockpiles are supporting prices. Driving this positive outlook are expectations of a fall in U.S. crude inventories for an eighth consecutive week. Gasoline stocks are also expected to decline.

Crude stockpiles have declined steadily for several weeks, with U.S. inventories falling to the lowest since February 2020 in the week to July 2.

First on tap is the weekly inventories report from the American Petroleum Institute (API), due to be released on Tuesday at 20:30 GMT.

Last week, the API reported a draw in crude oil inventories of 7.983-million barrels for the week-ending July 2. Analysts had expected a fall of 6.2 million barrels.

The API also reported a draw in gasoline inventories of 2.736-million barrels for the week-ending July 2. Analysts had expected a draw of 0.886 million barrels. Distillate stocks saw an increase in inventories this week of 1.086-million barrels for the week.

China January-June Crude Imports Fall, First H1 Drop Since 2013

China’s crude oil imports in the first half fell 3% from a year earlier, the first contraction for the first six months of a year since 2013, as an important quota shortage, refinery maintenance and rising global prices curbed buying.

US Shale Oil Output Expected to Rise 42,000 Bpd in August to 7.907 Million Bpd – EIA

Investors shrugged off the Energy Information Administration (EIA) monthly drilling productively report which said crude output from seven major shale formations is expected to rise by 42,000 bpd in August, to 7.907 million bpd, compared with a 28,000 bpd rise in July.

Daily Forecast

Prices could remain rangebound for most of the session until the API releases its weekly inventories data at 20:30 GMT. Early in the day, gains could be capped by reports from around the globe of surging infections that are keeping some investors cautious.

The World Health Organization (WHO) warned the Delta variant was becoming dominant and many countries had yet to receive enough doses of vaccine to secure their health workers.

In a development that could continue to underpin prices, OPEC+ is yet to make progress closing divisions between Saudi Arabia and the United Arab Emirates that last week prevented a deal to raise oil output, making another policy meeting this week less likely, OPEC+ sources told Reuters.

Look for volatility late in the session if the API report comes in weaker than expected, especially the gasoline number. This could trigger a sell-off.