Oil Price Fundamental Daily Forecast – Unexpected Inventories Build Sinks Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil are trading steady to better early Thursday after yesterday’s plunge confirmed the previous sessions technical reversal top. The early price action suggests investor indecision and impending volatility ahead of today’s U.S. Energy Information Administration’s weekly inventories report at 1600 GMT. The catalysts behind the selling pressure were concerns over a global economic slowdown, worries over U.S.-China trade relations, falling gasoline prices and rising U.S. production.

At 1001 GMT, March WTI crude oil futures are trading $52.77, up $0.16 or +0.30%. March Brent crude oil is at $61.27, up $0.15 or +0.25%.

American Petroleum Institute Report

The API reported late Wednesday afternoon that U.S. crude oil inventories rose by 6.6 million barrels for the week-ended January 18. Traders were looking for a drawdown of about 600,000 barrels.

The report also showed that gasoline stockpiles rose by 3.6 million barrels versus an estimate of an increase of 2.9 million barrels. Distillate inventories rose 2.6 million barrels. Traders had priced in a 900,000 barrel increase.

Forecast

The steep unexpected rise in API crude inventories shifts the focus away from the slew of worries over demand that have kept a lid on prices this week and on the EIA report. Today’s report is forecast to show a 200,000 barrel drawdown. However, this estimate could change in light of the API number.

An unexpected build could drive prices lower, but losses may be limited by OPEC and its allies’ adherence to its plan to cut production, trim the excess global supply and stabilize prices. Furthermore, there are also worries that the Trump administration could impose new sanctions on Venezuela’s oil sector as soon as this week if the political situation in the country deteriorates further.

At this time, the technical chart pattern suggests a ray of optimism, but if conditions continue to deteriorate, WTI sellers may take a run at the recent bottom at $50.66. Prices could plunge to $48.50 if this support level fails.

The first downside target for Brent crude oil is $58.91. If this support fails then look for the selling to continue into $56.65.