Crude Oil Price Forecast – Hurricane Threatens U.S. Production

WTI Crude Oil Faces a Fresh Supply Threat

WTI crude oil faces a fresh supply threat as the hurricane in the Gulf of Mexico continues to intensify. Maximum sustained winds at the moment are 110 mph, and it is forecast to make landfall Friday night, maybe early Saturday morning. For oil traders, the immediate issue is going to be how long offshore production remains unavailable and whether or not there is any sustained damage to infrastructure.

The latest offshore oil assessment published yesterday suggests that 1.28 million barrels per day of oil production has been shut in, equivalent to 62.89% of daily Gulf production. The Marine Minerals Administration, reporting through the Federal Offshore Regulators website, said personnel had evacuated 121 production platforms.

That being said, this is a temporary situation as opposed to some of the more prolonged shut-ins that we have seen in the Middle East. The reality is that undamaged facilities can restart after they are inspected and standard safety checks are done, while damaged installations could take longer.

This sets up a situation where the weekend could be very important because we need to know how much damage has been done to those rigs in the Gulf. That is probably a story that will develop Saturday evening, Sunday morning, possibly Monday.

The storm arrives against a supportive inventory backdrop. The EIA’s October 7 petroleum report showed commercial crude stocks falling 3.2 million barrels to 424.1 million in the week ending October 2. Crude exports have reached 4.765 million barrels per day, while refinery inputs have increased to 16.48 million. This all predates the storm, so this could look like a wild release next week.

Lost offshore production will reduce supply, potentially supporting WTI prices. The fact that the technical analysis lines up with that is something that is not lost on me. This is not to say that crude oil has to go straight up in the air, but clearly a lot of things are lining up at the same time to be supportive.

Brent Crude Oil

In the Brent market, we have seen a little bit of an early sell-off on Friday, although we are still fairly elevated. We are in the midst of consolidation, and it is probably worth noting that the Thursday candlestick did fill a gap from a couple of weeks ago.

The reduced availability in the United States could have an impact on Brent as well, and currently the EIA suggests that oil inventories globally have declined by 1.9 million barrels per day during the third quarter. It forecasts another decline of 700,000 barrels per day during the fourth quarter, which is a move in the right direction but still means that inventories are falling rather than rebuilding.

The EIA also estimates that Middle Eastern crude production shut-ins averaged 4.8 million barrels per day in September, down from 5.8 million in August. Nevertheless, the fourth-quarter forecast assumes continued constraints on regional exports. A sudden shift in geopolitics could change everything.

The agency projects Brent spot prices averaging roughly $105 per barrel during the fourth quarter, $14 higher than its previous forecast. OPEC+ policy provides another important reference for traders, and in an October 4 statement, seven participating countries, including Saudi Arabia and Russia, agreed to maintain September’s required production levels for November. Their next meeting is November 1.

That decision can turn interesting, as it involves production requirements, but the fact that they are saying they are exporting a certain amount of barrels does not necessarily mean that is the actual count, so keep that in mind.

The OPEC monitoring committee also has been emphasizing the safeguarding of maritime routes and warned that repairing damaged energy infrastructure is costly and is taking a significant amount of time. Capacity, as far as production is concerned, is not the issue at the moment. It is all about supply reaching international buyers.

Ultimately, Brent has many of the same supports that WTI does from a fundamental standpoint, and do not forget that if there is massive damage to U.S. production in the Gulf, it will have a bit of an effect over here as well.

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