Oil Price Fundamental Daily Forecast – With U.S. Production Rising, Crude Needs an OPEC Extension to Sustain Rally

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed higher on Wednesday, despite a government report showing a rise in U.S. crude inventories after the Iraqi oil minister said OPEC and its non-OPEC oil producing partners were considering extending or deepening output cuts.

November WTI crude oil futures settled at $50.73, up $0.83 or +1.66% and December Brent crude oil futures closed at $55.86, up $0.96 or +1.75%.

According to the U.S. Energy Information Administration, U.S. stockpiles jumped the week-ending September 15 as imports and production increased, as operations resumed from the impact of Hurricane Harvey which hit the Texas Gulf Coast on August 25.

Crude inventories rose for a third straight week, building by 4.6 million barrels. Traders had priced in a 2.8 million barrel build.

Gasoline stocks fell 2.1 million barrels, in line with analysts’ expectations while distillate stocks inventories fell 5.7 million barrels, the biggest weekly draw since November 2011.

Forecast

November WTI crude prices rose to $51.11 on Wednesday, its highest price since May 25, but the market is still trading well short of its high that day at $52.62. The positive is that the market remains firmly above the major support at $50.30. This price is currently controlling the direction of the market.

I expect to see the upside bias sustained as long as prices remain above $50.30. If buyers stop supporting the market at this price, we could see a pullback into at least $48.87.

On Friday, OPEC and its producer friends meet in Vienna to discuss the progress of their deal to limit production, trim the global supply and stabilize prices. The group will be trying to decide if it wants to extend the agreement or even deepen the price cuts.

Some producers think OPEC should extend the pact another three or four months, others want it to run until the end of 2018, while some, including Ecuador and Iraq, think there should be another round of supply cuts.

Going into the meeting, the crude oil market appears to be underpinned so I think investors will be disappointed if nothing is accomplished. This could encourage investors to take profits or pare positions.

The key level to watch is still $50.30. A sustained move over this level will indicate buyers are looking for an extension. A sustained move under it will indicate that doubts have emerged.