Oil Price Fundamental Daily Forecast – Tightening Supplies Bullish, Outside Market Volatility May Limit Gains

U.S. West Texas Intermediate and internationally-favored Brent crude oil rose on Thursday as investors focused on U.S. crude oil stockpiles after the U.S. Energy Information Administration (EIA) suggested oil inventories at the Cushing, Oklahoma hub were declining.

October WTI crude oil futures settled at $47.24, up $0.30 or +0.64% and November Brent crude oil finished the session at $50.75, up $0.65 or + 1.30%.

Traders reacted to a report from Genscape that showed inventories at Cushing, the futures delivery hub, declined more than a million barrels in the week to August 15.

Forecast

The latest EIA report showed commercial U.S. crude stocks have fallen by almost 13 percent from their peaks in March to 466.5 million barrels. Stocks are now lower than in 2016. If inventory declines continued at the current pace, U.S. stocks would fall below the five-year average in two months.

However, U.S. oil output is rising fast as shale producers take advantage of a recent increase in prices. U.S. crude production rose 79,000 barrels per day (bpd) to over 9.5 million bpd last week, its highest level since July 2015, and 12.8 percent above the most recent low in mid-2016.

Currently, the pace of the declines in inventory indicates that OPEC production cuts are having an effect, although this isn’t being reflected in the price action.

Despite the increased pace of the declines, the price action suggests the market is skeptical about the longer-term prospects for rebalancing of the oil market.

Thursday’s price action suggests we may have hit a technical support area on the charts. The lower-low, higher-close may also be an indication that the buying is greater than the selling at current price levels.

If the upside momentum continues on Friday we could see another surge. The key target for November Brent crude is $51.61 to $52.03. The upside target for October WTI crude oil is $48.57 to $49.02.

External factors could skew the forecast. Volatility has returned to the financial markets and this is influencing the movement in the U.S. Dollar. Crude oil could be affected by the dollar’s movement because it is a dollar-denominated asset.

It’s a long-shot right now, but if stocks sell-off hard then this may lead to margin calls. If hedge funds get hit by margin calls then they may be forced to sell positions in crude oil to raise funds. This could cause increased volatility in crude oil that may have nothing to do with the traditional fundamentals.