Oil Prices Forecast: WTI and Brent Tumble Amid Surging U.S. Inventories

Highlights

• Oil prices endure a third straight day of losses, pressured by an unexpected surge in U.S. inventories.
• U.S. crude stockpiles soar by 12.9 million barrels, defying analysts’ modest 500,000-barrel forecast.
• Gasoline inventories jump 3.6 million barrels, further fueling concerns of decreasing demand stateside.

Oil Prices in Retreat

Oil prices took another tumble on Wednesday, marking a third consecutive day of losses. The culprits: a larger-than-anticipated build in U.S. crude and gasoline inventories and diminished supply worries. Brent and West Texas Intermediate (WTI) benchmarks erased most of their gains from earlier in the week, painting a bearish picture for the immediate future.

U.S. Stockpiles Surge

Defying analysts’ predictions of a modest 500,000-barrel increase, U.S. crude oil stockpiles ballooned by 12.9 million barrels, as per data from the American Petroleum Institute. Contributing to this uptick were reduced refinery run rates, most likely due to maintenance activities. Gasoline inventories followed suit, increasing by 3.6 million barrels and contrasting sharply with the 800,000-barrel decline that had been expected. This dual stockpile surge has stoked concerns of waning fuel demand in the United States.

Consumer Response and Demand Outlook

The high fuel prices are inching closer to consumers’ pain threshold, triggering a noticeable cutback in consumption. In the Pacific Area Defense Command (PADD) 5 region, chiefly California, gasoline demand shrank by 100,000 barrels per day between June and September. This trend places the demand at a seven-month low of 1.46 million barrels per day.

Geopolitical Factors and Global Supply

Tensions in the Middle East seem to be easing, further exerting downward pressure on oil prices. The Israel-Hamas conflict’s limited impact on the oil markets has contributed to this relaxed stance. However, the U.S. Energy Information Administration (EIA) predicts that global oil inventories will decline in H2 2023 due to output cuts from Saudi Arabia and OPEC+ countries, providing some cushion against a complete price nosedive.

Short-Term Forecast: Bearish

Despite EIA’s long-term projections signaling a potential upswing in oil prices, the immediate outlook remains bearish. Factors such as the significant increase in U.S. inventories, coupled with easing geopolitical tensions, have set the stage for lower oil prices in the short term. Traders will likely keep a keen eye on additional inventory data and OPEC+ moves to gauge future price trajectories.

Technical Analysis

Daily Light Crude Oil futures stand at $83.14, above the 200-Day moving average of $77.67 but below the 50-Day average of $85.21. This positioning suggests longer-term strength but current weakness.

The market hovers above the minor support level of $82.68, with main support at $77.43 and main resistance at $97.67. Given its positioning between key moving averages and above minor support, market sentiment appears mixed, neither decidedly bullish nor bearish.

However, if sellers take out the support with conviction, the market will be vulnerable to a near-term break into the support cluster formed by the 200-Day moving average and the main support at $77.67 to $77.43.