Oil Price Fundamental Daily Forecast – Underpinned by API Report, but Volatile Move is Coming

U.S. West Texas Intermediate and international-benchmark Brent Crude Oil futures could not take advantage of the weaker dollar, falling sharply instead as buyer succumbed to reports of rapidly increasing U.S. production.

May WTI Crude Oil futures settled at $60.75, down $0.58 or -0.95% and June Brent Crude Oil finished the session at $64.52, down $0.27 or -0.42%.

Traders continued to react to the report from the U.S. Energy Information Administration on Monday which said output from the shale basin would hit a new record high in April.

U.S. crude output from major shale formations is expected to rise by 131,000 bpd in April from the previous month to a record 6.95 million bpd, the EIA said in a monthly report on Monday.

That expected increase would top the 105,000 bpd climb in March from the previous month, to what was then expected to be a record high of 6.82 million bpd, the EIA said.

Finally, U.S. production is expected to rise above 11 million bpd by late 2018, taking the top spot from Russia, according to the International Energy Agency (IEA).

Most notably, the premium of the front-month Brent and WTI futures contract to those for delivery further ahead has shrunk in the last two weeks in a sign that traders and investors are less optimistic about the likely balance between global supply and demand this year.

In other news, besides the price action, we are looking at another sign that the crude oil rally may be over. According to the Commodity Futures Trading Commission, money managers cut their combined net long positions in the six most important futures and options contracts linked to petroleum prices by 50 million barrels in the week to March 6.

Forecast

Crude oil futures are trading higher early Wednesday after two days of declines. Support is stemming from a report late Tuesday that showed U.S. crude inventories are not rising as much during the spring season that is starting, implying healthy demand.

At 0613 GMT, May WTI Crude Oil is trading $60.88, up $0.13 or +0.21% and June Brent Crude Oil is at $64.61, up $0.09 or +0.14%. Volume is extremely low and the ranges tight.

Traders are reacting to an American Petroleum Institute report that showed U.S. crude inventories rose by 1.2 million barrels in the week to March 9, to 428 million barrels. That compared with analysts’ expectations for an increase of 2 million barrels.

Refinery crude runs rose by 85.000 barrels per day (bpd), API data showed.

Later today at 1430 GMT, investors will get the opportunity to react to fresh data from the EIA. Its report is expected to show inventories rose 2.2 million barrels during the week-ending March 9.

Although the ever-expanding U.S. supply continues to pose significant risk to oil prices, short-term oversold continues could lend some support to the market today. The markets are currently trading inside a major technical triangle chart formation which suggests investor indecision and impending volatility.

Traders should continue to watch for a major news event that could fuel a volatile reaction. The trigger point for an acceleration to the downside by the May WTI futures contract is $59.91.