Oil Price Fundamental Daily Forecast – Short-Covering Ahead of EIA Monthly Report, API Inventories Data

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday after a successful test of a key support area the previous session. There were no major changes in the fundamentals so the early strength could be related to reports of firm demand in the U.S. and Europe.

We can also build a case for profit-taking and position-squaring ahead of today’s American Petroleum Institute (API) inventories report, due to be released late in the session.

At 10:10 GMT, September WTI crude oil futures are trading $67.29, up $0.81 or +1.22% and October Brent crude oil is at $69.65, up $0.61 or +0.88%.

Technical Bounce

U.S. crude oil found buyers inside a key retracement zone at $66.35 to $64.05. This zone also stopped the selling at $65.01 on July 20. Yesterday, the selling stopped at $65.15.

The selling pressure in Brent crude oil stopped at $67.61 on Monday. This was inside the $68.18 to $66.14 retracement zone and slightly above the July 20 main bottom at $66.87.

Rising Concerns over Asian Demand Especially China

Oil prices were down sharply on Monday on concerns that new coronavirus-related restrictions in Asia, especially China, could slow a global recovery in fuel demand.

Wall Street banks Goldman Sachs, JPMorgan and Morgan Stanley all cut their China growth forecasts on Monday, after export growth slowed unexpectedly and on concerns that the resurgent coronavirus could crimp economic activity.

China reported 125 new COVID1- cases on Monday, up from 96 a day earlier. In Malaysia and Thailand, infections hit daily records.

China’s export growth slowed more than expected in July after outbreaks of COVID-19 cases and floods, while import growth was also weaker than expected.

China’s crude oil imports fell in July and were down sharply from the record levels of June 2020.

Strong US Dollar Could Cap Gains

The U.S. Dollar is trading near a three-week high against a basket of currencies, weighing on oil prices. A stronger greenback makes oil more expensive for holders of other currencies.

The dollar is being supported by Friday’s stronger-than-expected U.S. jobs report, which spurred bets that the Fed could move more quickly to tighten monetary policy.

Atlanta Federal Reserve Bank President Raphael Bostic also said the U.S. economy is improving faster.

Daily Forecast

Traders will be watching today’s API report and tomorrow’s Energy Information Administration’s (EIA) inventories numbers for signs of demand.

U.S. crude, gasoline, and other product inventories are likely to have dropped last week, with gasoline stocks forecast to fall for a fourth consecutive period, a preliminary Reuters poll showed on Monday.

Crude oil inventories are expected to have fallen by about 1.1 barrels in the week to August 6, according to the average estimate of six analysts polled by Reuters.

U.S. gasoline futures slid less than crude, boosting the gasoline crack spread – a measure of refining profit margins – to its highest close since hitting a record in April 2020 when WTI settled in negative territory.

Fuel demand in India, meanwhile, rose in July to its highest since April as pandemic restrictions and lockdowns were unwound in most states, boosting industrial activity and mobility.

Analysts said the oil market was looking for direction from monthly data due this week – the EIA on Tuesday, and the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) on Thursday.