Oil Price Fundamental Daily Forecast – Surprise API Data, Tariff Concerns Weighing on Prices Ahead of EIA Report

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower early Wednesday, following through to the downside after a steep sell-off the previous session. The catalyst behind the selling pressure is an industry report that showed U.S. stockpiles of crude oil unexpectedly rose. Today’s early weakness comes on the back of the largest monthly decline in two years in July by both benchmark futures contracts.

At 0652 GMT, September WTI crude oil is trading $68.36, down $0.42 or -0.63% and October Brent crude oil is at $73.87, down $0.34 or -0.46%.

Late Tuesday, the American Petroleum Institute (API) reported a crude oil inventory build of 5.59 million barrels of United States crude oil inventories for the week ending July 28, compared to analyst expectations that this week would see a draw in crude oil inventories of 2.794 million barrels.

The API also reported a draw in gasoline inventories for the week-ending July 28 in the amount of 791,000 barrels. Analysts predicted a draw of 1.288 million barrels.

Additionally, distillate inventories were also up last week, by 2.89 million barrels, compared to an expected build of 264,000 barrels. Inventories at the Cushing, Oklahoma site decreased this week by 930,000 barrels.

Forecast

On top of yesterday’s bearish API inventories report, crude oil traders have to deal with a possible escalation of the trade dispute between the United States and China. According to reports, the Trump administration is expected to announce additional tariffs on China sometime today.

A source familiar with the plan told CNBC on Tuesday that the Trump Administration plans to propose slapping a 25-percent tariff on $200 billion of imported Chinese goods after initially setting them at 10 percent, in a bid to pressure Beijing into making trade concessions. The new plan more than doubles the tariff rate first reported by Bloomberg News on July 10.

Additional tariffs could be bearish for crude oil prices because it could trigger a global economic slowdown. This could lead to lower demand for crude which would put pressure on prices.

Traders also said that signs that a supply disruption in the Bab al-Mandeb Strait in the Red Sea could be resolved also weighed on prices.

Crude oil prices could feel additional pressure on Wednesday following the release of the U.S. Energy Information Administration’s weekly inventories report at 1430 GMT. It is expected to show a 2.6 million barrel draw down, however, this could change because of the surprise in the API report.