Oil Price Fundamental Daily Forecast – Could Start to See Profit-Taking Ahead of OPEC’s Week-End Meeting

The current price action confirms the notion that the crude oil market is “fragile” and highly sensitive to the upside on any news that even hints at lower supply. It seems the damage from the Iran sanctions is underpinning the market, encouraging speculators to buy on the dips, while fresh supply news like weekly API and EIA reports is providing the firepower for weekly price spikes.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher early Thursday, continuing to be supported by lower U.S. crude oil inventories and global supply worries. Specifically, helping to underpin prices is another drawdown in U.S. inventories and strong U.S. gasoline demand. Additionally, there are also signs that OPEC may not raise output to offset shrinking exports from Iran.

At 0812 GMT, November WTI Crude Oil is trading $71.06, up $0.29 or +0.41% and December Brent Crude Oil is at $78.96, up $0.04 or +0.05%.

According to the U.S. Energy Information Administration, U.S. crude oil supplies fell for a fifth straight week to a 3.5 year low in the week-ending September 14, while gasoline inventories also drew down sharply last week on unseasonally strong demand.

Crude inventories fell 2.1 million barrels to 394.1 million barrels, the lowest since February 2015, EIA data showed. Analysts had forecast a decrease of 2.7 million barrels.

Gasoline stocks fell 1.7 million barrels, compared with analysts’ expectations for a 104,000-barrel drop.

Distillate stockpiles, which include diesel and heating oil, rose 839,000 barrels, versus expectations for a 651,000-barrel increase, the EIA data showed.

Additionally, crude stocks at the Cushing, Oklahoma, futures delivery hub fell 1.25 million barrels, EIA data showed. Net U.S. crude imports fell last week by 106,000 barrels per day, as exports jumped over 500,000 bpd to 2.4 million bpd.

Refinery activity started to slow down from record highs reached a month ago with crude runs down 442,000 bpd and utilization rates off 2.2 percentage points to 95.4 percent of nationwide capacity, EIA data showed.

Finally, weekly crude production inched back to 11 million bpd, the record high it has been hovering around this summer.

Forecast

The current price action confirms the notion that the crude oil market is “fragile” and highly sensitive to the upside on any news that even hints at lower supply. It seems the damage from the Iran sanctions is underpinning the market, encouraging speculators to buy on the dips, while fresh supply news like weekly API and EIA reports is providing the firepower for weekly price spikes.

Mostly, however, it’s the uncertainty over how easily other producers can compensate for any lost supply. This question could be answered this week-end when OPEC and other producers including Russia meet on Sunday in Algeria to discuss how to allocate supply increases within their quota framework to offset the loss of Iranian supply.

The week-end event could give investors an excuse to begin booking profits late Thursday or early Friday. However, we may not see much of a correction because OPEC sources have told Reuters no immediate action was planned and producers would discuss how to share a previously agreed output increase.

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