Oil Price Fundamental Daily Forecast – U.S. EIA Stocks Report Expected to Show 2.6 Mb Drawdown

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished slightly lower on Tuesday after giving back earlier gains. Advances were capped by concerns that a rising U.S. Dollar would dampen demand for the dollar-denominated asset. Worries that a bear market in emerging economies would lead to lower demand also weighed on prices.

On Tuesday, October WTI crude oil settled at $66.33, down $0.24 or -0.36% and October Brent crude oil finished the session at $72.46, down $0.15 or -0.21%.

The futures markets were further weakened late in the session after data from industry group the American Petroleum Institute (API) showed that U.S. crude stocks unexpectedly rose by 3.7 million barrels the week-ending August 10, compared with analysts’ expectations for a drawdown of 2.5 million barrels.

The API also reported a draw in gasoline inventories last week in the amount of 1.56 million barrels. Analysts had predicted a smaller draw of 583,000 barrels.

Distillate inventories were also up last week by 1.94 million barrels, compared to an expected build of 964,000 barrels. Inventories at the Cushing, Oklahoma site increased this week by 1.64 million barrels.

Earlier in the session on Tuesday, prices were driven higher by reports that Saudi Arabia has curbed output instead of increasing it as expected during July.

Forecast

U.S. and Brent crude are under pressure early Thursday as investors continue to react to the bearish API data, talk of lower demand and the strengthening U.S. Dollar. Losses are being limited on light volume ahead of today’s U.S. Energy Information Administration’s weekly inventories report at 1430 GMT, which is expected to show a 2.6 million barrel draw. The outcome of this report is likely to set the tone the rest of the session.

Traders are also monitoring reports of multiple unsold crude oil cargoes around the Atlantic Basin, with producers including Russia and Nigeria cutting prices for certain grades. OPEC’s MOMR published a report yesterday that painted a picture of diminishing oil demand growth rates.

The supply/demand picture remains unclear due to uncertainty over the size of the loss of crude oil production due to the sanctions against Iran, which are expected to kick in on November 1.

Since there is still time until the start of the sanctions, over the short-run, it looks like the fear of slower demand is going to dictate the direction of the market. However, it should be noted that the hedge funds remain net long the market and stand ready to buy more futures contract should any hint of a supply disruption develop.