Crude Oil Forecast: Bears Take Control on Inventory Build, Potential SPR Release

Crude Oil, EIA, OPEC, US Energy Policy, Refinery Capacity – Talking Points

• Crude oil prices drop overnight after US energy policy news, inventory build
• Demand-side woes build after US GDP growth forecast received a downgrade
• Crude prices break below July swing high as bears take control of price action

Crude oil fell nearly 2% overnight after EIA data showed a surprise inventory build. That is the biggest drop since September 20, although prices remain on track to record a seventh weekly gain. Inventory data from the Energy Information Administration (EIA) showed US crude oil stocks rose by 2.346 million barrels for the week ending October 1. Analysts expected the data to show a draw of nearly half a million barrels, according to a Bloomberg survey.

A Financial Times report eased supply concerns further. US Energy Secretary Jennifer Granholm presented several strategies to cull rising oil prices, including releasing oil from the Strategic Petroleum Reserve (SPR) and restricting oil exports, according to the FT’s reporting. High energy prices have been a political headwind for the Biden administration. Gasoline prices are near 7-year highs, pressuring consumers already stressed by rising prices elsewhere.

Crude oil prices have risen on rosy economic growth forecast as vaccination campaigns started earlier this year. Those forecasts remain healthy, although the Covid Delta variant has dragged on expectations recently. US third-quarter real GDP growth was downgraded from 2.3% to 1.3% this week, according to the Federal Reserve Bank of Atlanta’s GDPNow. If other high-profile growth forecasts show similar tapering, it may start to weigh on crude oil’s optimistic demand-side outlook.

OPEC is rather bullish in its demand outlook, with the cartel’s latest annual report showing robust long-term demand increases. Earlier this week, OPEC+ opted to increase oil supply in November by 400k barrels a day. Some analysts expected an increase of up to 800k barrels a day given the recent price gains. The group’s own concerns over growth likely weighed. Moreover, a preemptive strike against US energy policy may have also been a driving force behind the decision, given the group’s political prowess.

The US non-farm payrolls report is the next potential catalyst for crude oil prices. Analysts expect to see 500k jobs added in September, according to a Bloomberg survey. A better-than-expected figure would bode well for growth forecasts, potentially supporting prices. Meanwhile, US refinery capacity continues to rise toward pre-Hurricane Ida levels. The higher capacity is much needed amid higher fuel prices. Overall, prices may have more downside to go as traders remain laser-focused on US energy policy moves.

Crude Oil Technical Forecast

Crude oil prices are moving lower through the APAC session, a breach below the July swing high at 76.98 – which was the 2021 high prior to this week. The rising 9-day Exponential Moving Average (EMA) may provide support if weakness continues. Bulls will have to retake 76.98 before dialing back in on the 80 psychological handle.

Crude Oil Daily Chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

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