Oil Price Fundamental Daily Forecast – Crude Falls on Lower Demand Concerns Ahead of EIA Expected Build

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Wednesday, shortly before the release of the U.S. government’s weekly inventories report.

Traders are saying the catalyst behind the selling pressure is a report that the Chinese government has stepped up efforts to tame record high coal prices and ensure coal mines operate at full capacity as Beijing moved to ease a power shortage.

At 13:57 GMT, December WTI crude oil is trading $81.61, down $0.83 or -1.01% and December Brent crude oil is at $84.27, down $0.81 or -0.95%.

The news from China is helping to offset a mixed industry report released late Tuesday than showed a crude oil build and a draw in gasoline and distillate stocks.

Crude Pressured as China Considers Intervention to Ease Coal Crunch

WTI and Brent crude oil prices are being pressured on Wednesday after the Chinese government moved to ease a power shortage by taming record high coal prices and ensuring full utilization of coal mines.

“China is planning to take steps to combat the steep rises in the domestic coal market…which could put considerable pressure on the coal price there and reverse the fuel switch to oil,” Commerzbank said.

Prices for Chinese coal and other commodities slumped in early trade, which in turn pulled oil down from an uptick earlier in the day.

China’s National Development and Reform Commission said on Tuesday it would bring coal prices back to a reasonable range and crack down on any irregularities that disturb market order or malicious speculation on thermal coal futures.

American Petroleum Institute Weekly Inventories Report

The API on Tuesday reported its fourth straight week of crude oil inventory builds. The week, according to the API, showed an increase of 3.294 million barrels. Traders were looking for a build of 2.233-million barrels.

U.S. crude inventories are still 63 million barrels below where they were at the beginning of the year.

The API also reported a draw in gasoline inventories of 3.5 million barrels for the week ending October 15. Distillate stocks saw a decrease of 3.0 million barrels for the week.

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 a build of 2.1 million barrels.

The news about China increasing its usage of coal for its heating needs is bearish, but just enough to erase some of crude oil’s recent gains. This news won’t change the major trend to down.

Recently, Saudi Arabia’s minister of energy said users switching from gas to oil could account for demand of 500,000-600,000 barrels per day, depending on winter weather and prices of other sources of energy.

The 500,000 – 600,000 barrel per day increase in demand is likely to be lowered if China burns more coal than crude oil for heat.