Oil Price Fundamental Daily Forecast – API Draw Fuels Rally, Investors Set for EIA Report

U.S. West Texas Intermediate and international-benchmark Brent crude oil closed nearly 1.50% higher on Tuesday in a wicked trading session. Technical factors spilled over from Monday’s trade, giving the market an early upside bias shortly before prices plunged following a wave of negative price forecasts.

The inability to take out the previous day’s low and concerns that lower prices could reduce U.S. oil production helped stabilize prices, but it was a private industry report that showed a bigger-than-expected draw in crude inventories that triggered the strong rally into the close.

August WTI crude oil futures settled at $45.04, up $0.64 or +1.44% and September Brent crude oil futures closed at $47.52, up $0.64 or +1.37%.

Prices were driven lower shortly after the opening on Tuesday by bearish forecasts from BNP Paribas, Barclays and Goldman Sachs. Goldman went as far as saying that oil prices could fall below $40 if the market doesn’t get a clear catalyst to buy. It further added that the catalyst could be further intervention by OPEC or a steady drop in U.S. crude stockpiles and the nation’s rig count. Furthermore, it said global stockpiles are declining, but rising production in Libya and Nigeria is a concern.

Later in the session, the U.S. Energy Information Administration cut its outlook for oil prices and trimmed its forecast for how much oil U.S. drillers will pump next year. However, the expectation for lower prices will drag on U.S. oil production in 2018.

Last month, the EIA forecast U.S. drillers would produce 10 million barrels a day in 2018. On Tuesday, it said the U.S. would pump 9.9 million barrels a day. This 100,000 barrel drop apparently was enough to trigger an intraday short-covering rally.

At the end of the day, prices surged after the American Petroleum Institute (API) said U.S. crude oil inventories fell by 8.1 million barrels in the week to July 7 to 495.6 million. Traders were looking for a modest draw of 2.99 million barrels.

Gasoline inventories for the same week also fell moderately, by 801,000 barrels, after falling 5.7 million barrels the previous week. Analysts were looking for a 1.1 million-barrel build.

Forecast

Oil prices are extending their gains early Wednesday in anticipation of good news from the U.S. Energy information Administration at 1430 GMT. Traders are predicting the EIA inventories report will show a draw of about 3.2 million barrels. A bigger number should be bullish for oil prices. A smaller number will likely lead to profit-taking and a possible break into the close.

WTI crude is only testing the retracement zone of its last break from $47.32 to $43.65. Look for the rally to extend on a sustained move over $45.92. A sustained move under $45.48 will indicate the return of sellers.