Oil Price Fundamental Daily Forecast – Traders Likely to Change EIA Report Expectations

U.S. West Texas Intermediate and international-benchmark Brent crude oil rallied to their highest level in three weeks on Tuesday as tension between Saudi Arabia and Iran and the possibility of further declines in Venezuelan output helped offset the impact of rising U.S. crude production.

May WTI Crude Oil settled at $63.54, up $1.41 or +2.27% and June Brent Crude Oil finished at $67.13, up $1.31 or 1.99%.

Geopolitical risks were at the forefront on Tuesday after Saudi Arabia called the 2015 nuclear deal between Iran and western powers a “flawed agreement” on Monday, on the eve of a meeting between Crown Prince Mohammed bin Salman and U.S. President Donald Trump. The Saudi’s also said that it would create a nuclear weapon should Iran get its hands on the same.

Another factor driving prices higher is Venezuela’s falling oil production. Venezuela’s oil production fell to just 1.548 million bpd last month, a 52,400 barrel per day drop from January 2018, according to OPEC secondary sources.

Forecast

Yesterday’s rally took the WTI futures contract to $63.98, just slightly below the February 26 main top at $64.07. The Brent futures contract, however, exceeded its February 26 top at $67.37 with a rally to $67.55. In order to sustain the current rally, I believe both markets are going to have to work in sync and continue to post higher-highs. Any sustained divergence between the two futures contracts will be a sign of weakness.

Keep in mind that we are in an event driven rally fueled mostly by speculation and short-covering. Although there are legitimate concerns over Middle East tensions, the primary price driver is likely to remain supply and demand. Oversupply is the main issue because of rising U.S. production.

Early Wednesday, May WTI crude oil futures are trading $63.63, up $0.09 or +0.14%. Brent futures are at $67.21, up $0.08 or +0.12%.

Today’s early price action is being fueled by a bullish American Petroleum Institute (API) weekly inventories report. It showed a surprise draw of 2.739 million barrels of crude oil inventories for the week-ending March 16. Analysts had been looking for a build of 2.556 million barrels. This means they missed by over 5 million barrels.

The API also reported a draw of 1.0633 million in gasoline supplies, largely in line with the 2.008-million-barrel draw that analysts had expected. Distillate inventories posted another draw this week of 1.926 million barrels. Analysts had forecast a decline of 1.746 million barrels.

Today’s U.S. Energy Information Administration’s weekly inventories report is expected to show a 5 million barrel build. However, this estimate may change because of the API data.