Oil Price Fundamental Daily Forecast – Consolidating Ahead of US Inflation Report, EIA Weekly Inventories Data

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Wednesday shortly before the release of a key U.S. consumer inflation report and after industry data released late Tuesday showed an unexpected build.

At 08:31 GMT, September WTI crude oil is trading $89.50, down $1.00 or -1.10% and December Brent crude oil is at $92.89, down $0.75 or -0.80%. On Tuesday, the United States Oil Fund ETF (USO) settled at $73.46, down $0.08 or -0.11%.

US Consumer Inflation to Slow but Won’t Alter Fed’s Rate Hike Plans

Today’s U.S. Consumer Price Index (CPI) report, due to be released at 12:30 GMT, is expected to have risen at a much slower pace in July due to a sharp drop in the cost of gasoline, delivering the first notable sign of relief for Americans who have watched inflation climb over the past two years.

The report, however, is still likely to show that underlying inflation pressures remain elevated as the Federal Reserve mulls whether to embrace another super-sized interest rate hike in September. Ahead of the report, the market is pricing in a 69.5% chance of a 0.75% rate hike.

Core CPI is forecast to be up 0.5% in July after climbing 0.7% in June. However, the annual pace is expected to reach 6.1%, up from 5.9% last month.

As far as crude oil and gasoline prices are confirmed, Fed policy can help drive down demand, but it can’t control supply. Any signs of supply disruption could drive crude oil and gasoline prices higher and hence consumer inflation.

Even with a dip in the CPI, the Fed is going to keep raising rates. Fed policymakers last week flagged that they will push on with the rate hikes until they see strong and long-lasting evidence that inflation is on track back down to the U.S. central bank’s 2% goal.

American Petroleum Institute Weekly Inventories Report

U.S. crude stocks rose by about 2.2 million barrels for the week ended August 5, according to market sources citing American Petroleum Institute (API) figures. Analysts were looking for a draw of around 400,000 barrels.

The build comes as the Department of Energy released 5.3 million barrels from the Strategic Petroleum Reserves (SPR) in the week ending August 5, to 464.6 barrels.

The API also reported a draw in gasoline inventories this week of 627,000 barrels for the week ending August 5, compared to the previous week’s 204,000-barrel draw.

Distillate stocks saw a build of 1.376 million barrels for the week, compared to last week’s 351,000-barrel decrease.

Daily Forecast

Today’s U.S. Energy Information Administration (EIA) weekly inventories report, due to be released at 14:30 GMT, is expected to show crude oil stockpiles rose by 100,000 barrels.

Fed rate hikes tend to drive down demand. And its worries about lower demand that are weighing on crude oil prices. However, the selling pressure is likely to be limited because the supply outlook is still tight. The key support area on the September WTI crude oil chart that must hold is $89.54 to $82.80.

Any supply disruption especially in Europe due to the war could turn this market higher easily. However, there is factor that could put additional pressure on prices. That is the Iran Nuclear Agreement. This will bring new supply to the market.