Oil Price Fundamental Daily Forecast – Traders Expecting EIA to Report 2.1 Million Barrel Build

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Wednesday shortly before the release of the government’s weekly storage report. The inside trading range suggests investor indecision and impending volatility. Weighing on prices are aggressive central bank rate hikes and worries that weak demand will lead to a buildup in U.S. crude inventories.

At 13:26 GMT, September WTI crude oil futures are trading $98.98, down $1.76 or -1.75% and September Brent crude oil is at $105.76, down $1.59 or -1.48%. On Tuesday, the United States Oil Fund ETF (USO) settled at $78.02, up $1.21 or +1.57%.

Fear Aggressive Central Bank Rates Hikes Will Slow Demand

Traders have been bailing out of their bullish crude oil positions for weeks, but they aren’t going short either, as open interest in New York Mercantile Exchange futures fell to its lowest level since September 2015 on concerns the Federal Reserve and other major central banks will keep raising U.S. interest rates aggressively to fight inflation.

Next Wednesday, the Federal Reserve is widely expected to raise its benchmark interest rate 75 basis points. Although policymakers may discuss the possibility of a 100 basis point hike, several Federal Open Market Committee (FOMC) have already publicly indicated they’d vote against such a move. Nonetheless, the Fed is likely to leave open the option for an equal or more aggressive rate hike in September.

The European Central Bank, the Bank of England and the Reserve Banks of Australia and New Zealand are also expected to step up the size of their next rate hikes.

Traders fear that raising rates too aggressively could drive the global economy into recession rather than just slow it down. This would lead to lower demand and lower prices.

API Report:  Large Build Weighs on Prices

Gains have been capped and prices are edging lower after the American Petroleum Institute (API) reported a build this week for crude oil of 1.860 million barrels versus a pre-report estimate of 333,000 barrels.

Traders said the build came as the Department of Energy released 5 million barrels from the Strategic Petroleum Reserves (SPR) in the week-ending July 15, to 480.1 million barrels.

The API also reported a build in gasoline inventories this week of 1.290 million barrels for the week-ending July 15, compared to the previous week’s 2.927-million-barrel build.

Distillate stocks saw a draw of 2.153 million barrels for the week, compared to last week’s 3.262-million-barrel increase.

Cushing inventories rose by 523,000 barrels this week, on top of last week’s build of 298,000.

Daily Forecast

Official weekly crude and fuel inventory data from the U.S. Energy Information Administration (EIA) is expected on Wednesday at 14:30 GMT. It is expected to show a crude oil build of 2.1 million barrels.

A larger number will likely drive September WTI crude into $96.74 to $95.12. Taking out $95.12 could trigger an acceleration to the downside.

A small number could trigger a surge into the main top at $102.00, followed by a retracement zone at $103.16 to $106.68.