Crude Oil, API Inventory, Economic Demand – Talking Points

  • Crude oil rally pauses after weekly API shows big stockpiles build
  • OPEC monthly report trims oil demand outlook, adding headwinds
  • RSI signals that prices may be overextended above the 80 handle

Crude oil prices pulled backed slightly overnight after a US report showed a large build in stockpiles. The American Petroleum Institute (API) reported a 5.213 million barrel build for the week ending October 8. That is the third weekly inventory build reported by the API. Energy traders will shift their focus to the upcoming Energy Information Administration’s Weekly Petroleum Status Report where analysts expect to see a build of just over half a million barrels for the week ending October 8, according to a Bloomberg survey.

The Organization of the Petroleum Exporting Countries (OPEC) released its Monthly Oil Market Report, which trimmed its global demand outlook for this year. The organization lowered its 2021 demand forecast for oil from 5.96 million barrels per day (bpd) to 5.82 bpd. The 4.2 million bpd forecast for 2022 was unchanged from its September report. Delta variant-driven outbreaks in the summer months were responsible for the downward revision.

However, OPEC did note a possible tailwind for oil prices due to rising natural gas prices. The energy crunch across Asia and Europe sent prices for the heating gas soaring this year. US prices are also higher, partially due to export demand from those energy crunches. UK natural gas prices are up nearly 300% for the year, although the meteoric rise appears to be taking a breather.

That rise is incentivizing some energy producers to switch to crude and Brent oil products. That said, if natural gas prices continue to rise, it may likely drag oil prices higher alongside. The EIA will report weekly US natural gas stocks tonight. Analysts expect a 94.58 billion cubic feet (bcf) build. A larger-than-expected build may see prices ease, which could ease demand for crude oil from energy producers.

Crude Oil Technical Forecast

Prices are hovering just above the psychologically imposing 80 handle. The 161.8% Fibonacci extension from the late July to August move capped upside action earlier this week. Bulls may see that as a level to overcome before moving higher. The RSI oscillator is in overbought territory on the daily time frame, suggesting prices may need to cool for a period before resuming the preceding uptrend.

Crude Oil Daily Chart

crude oil forecast

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

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