Oil Price Fundamental Daily Forecast – Rally Supported by Drop in Gasoline Supply, Production Decline
The short-covering rally continued in crude oil on Tuesday with the U.S. West Texas Intermediate and international benchmark Brent futures contracts closing more than one-percent higher.
August WTI crude oil futures finished the session at $44.74, up $0.50 or +1.13% and September Brent crude oil futures settled the day at $47.54, up $0.62 or +1.32%.
The rally was driven by a government report that showed U.S. gasoline stockpiles fell more than expected. The report also showed U.S. crude inventories rose, but less than Tuesday’s American Petroleum Institute’s inventories report suggested.
According to the U.S. Energy Information Administration, crude inventories rose by 118,000 barrels in the week to June 23 as refineries cut output. That compared with analyst expectations for a decrease of 2.6 million barrels.
The EIA report also showed gasoline stocks fell by 894,000 barrels, compared with analysts’ expectations for a 583,000-barrel drop.
Forecast
Crude oil is up slightly early Thursday, continuing the rally which is now in its sixth day. The rally was initially fueled by profit-taking and short-covering, these factors led to a steady grind higher. However, Wednesday’s price action was a little more agitated perhaps because short-sellers were getting a little nervous, or aggressive counter-trend buyers came in to support the market.
We could know as early as today as to whether there is enough buying strength in the market at this time to take out the last swing top on the August WTI chart at $45.28 with enough conviction to change the trend to up and continue the rally.
If the buying is strong enough to take out $45.28 to continue the move then we could see this rally extend into at least $47.14 over the near-term. If the breakout over $45.28 is triggered by buy stops then the rally will fail and prices will retreat back to about 50% of the first leg up.
The problem I have with sustaining the rally is that the market hasn’t built a support base. The sell-off into $42.05 was essentially a one and done move,
If you look beyond the headline numbers of today’s EIA report, you’ll see that the government said weekly production declined 100,000 barrels per day (bpd) to 9.3 million bpd. This was the biggest decline in weekly output since July 2016.
Given the drop in production, we’re going to be watching Friday’s rig count report to see if the number of producing wells went down for the first week in 23. If the count drops then look for more short-covering.
This article was originally posted on FX Empire
