Oil Price Fundamental Daily Forecast – API Reports Huge Unexpected Inventory Build Ahead of EIA Data

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Wednesday after recovering from early session weakness. Despite the slight rebound, investors remain cautious ahead of today’s government inventories report after an unexpected build was reported by a private industry source late Tuesday.

At 09:27 GMT, March WTI crude oil futures are trading $75.81, up $0.44 or +0.58% and March Brent crude oil futures are at $80.62, up $0.52 or +0.65%. On Tuesday, the United States Oil Fund ETF (USO) settled at $65.89, up $0.01 or +0.01%.

Economic uncertainty is also an issue limiting the market’s upside movement. The problem is the bearish sentiment on the demand side. Although China is reopening its borders, it’s also dealing with a widespread COVID-19 outbreak. Meanwhile, the U.S. and Europe remain at risk of economic slowdowns. Additionally, supply seems to be flowing freely although it remains susceptible to a disruption at any time.

Contango Market Highlights Demand Issues

According to Reuters, the market structure for futures reflects that weakness with both the front-month Brent and WTI contracts remains in contango, where prompt month prices are trading lower than forward month prices, typically a sign that there is less short-term demand for oil.

During a typical uptrend or bull market rally, the front-month futures contract is trading higher than the deferred months. The markets are likely to remain in the “sell the rally” mode until the nearby futures contract’s price rises above the back month prices.

API Reports Unexpected Inventory Build

Crude oil inventories rose by 14.865 million barrels, American Petroleum Institute (API) data showed late Tuesday, as refining activity begins to return to normal following previous weather-related shutdowns. Analysts polled by Reuters expected crude stocks to fall by 2.2 million barrels.

The large build in commercial crude oil inventories comes as the Department of Energy released 0.8 million barrels from the Strategic Petroleum Reserves in the week ending January 6, leaving the SPR with just 371.6 million barrels.

Short-Term Outlook

This week’s subdued price action suggests traders are waiting for Thursday’s U.S. Consumer Price Index (CPI) report before making a move.  This is because the data will influence Federal Reserve interest rate policy.

A weak inflation reading is likely to have a bullish influence on crude oil prices. Treasury yields will fall on the news, dragging the U.S. Dollar lower and making dollar-denominated crude oil more desirable for foreign buyers.

Traders will also be looking out for inventory data from the U.S. Energy Information Administration (EIA) due to be released at 15:30 GMT. Preliminary guesses are for a 2.0 million barrel crude oil draw, but there could be a surprise build given the API results. Nonetheless, traders should brace for a volatile reaction to the report.