On Wednesday the U.S. Energy Information Administration (EIA) will report the status of the country’s commercial inventories of crude oil and refined petroleum products. Oil traders are behaving Tuesday as if the party that started with rising prices last week is back in full swing.

West Texas Intermediate (WTI) crude oil traded as high as $46.83 earlier this morning, up nearly 1.8% from last night’s closing price of $46.02. About half that gain had been given back by mid-morning.

Tuesday morning’s rising price was likely the result of two factors: the decline of the U.S. dollar and the early forecast for changes to the U.S. petroleum inventories. When the dollar weakens, the price of oil typically moves higher to pick up the slack in value for the commodity that is priced in dollars. The dollar was down about 0.6% earlier this morning, which many observers attributed to the failure of the U.S. Senate to pass its replacement for the Affordable Care Act. The inference among investors is that the Republicans, who control both houses of Congress and the presidency, will also be unable to push through a tax reform bill.

Regarding the U.S. petroleum inventories, analysts polled by S&P Global Platts have forecast that crude oil inventories fell by 3 million barrels last week, gasoline inventories dropped by 700,000 barrels, and distillate (diesel) rose by 500,000 barrels. Any inventory draw-down in crude oil or gasoline is greeted enthusiastically by investors, even though it is clear that the global crude oil market will not be rebalanced until the end of this year, at best, and maybe not until this time next year.

As we noted yesterday, the EIA is expecting oil production in seven major U.S. shale plays to rise by 113,000 barrels a day in the month of August following an estimated 124,000 barrel a day gain in July. More production, even during the peak U.S. driving season, does not support higher oil prices.

Some traders may be pinning their hopes for higher prices on a meeting later this month at which the OPEC management committee is going to discuss limiting production from Libya and Nigeria and perhaps increasing the level of cuts from other OPEC member nations. Chances that any one of these changes will be agreed upon are low; chances that all will be adopted are essentially nil.

And how about the futures market? With no sign of limiting production from U.S. shale fields and no realistic chance that OPEC is going to do anything to raise prices, the futures market has turned bearish after a run-up due to short covering in the week before the July 4 holiday. Reuters analyst John Kemp sums it up neatly: “Prices may therefore have to continue falling low enough for long enough to enforce a strategy correction from the shale drillers or OPEC.” Who will blink first this time?

By late Tuesday morning, WTI crude oil prices had added 0.9% to last night’s settlement price to trade at $46.45. The 52-week range on crude is $42.06 to $58.30.

Brent crude for September delivery traded up about 1% at $48.90 in a 52-week range of $44.60 to $60.18.

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