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Oil Price Fundamental Daily Forecast – Despite Robust Production, Markets Are Vulnerable to Supply Disruptions

The battle between the known and the unknown, between the aggressive speculators and professionals, continues on Thursday after a strong surge in prices the previous session has failed to attract enough new buyers so far today to continue the rally.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower early Thursday, pressured by a report from the International Energy Agency that said global oil supply hit a record high in August despite lower production from Iran and Venezuela. The news was revealed in the IEA’s monthly Oil Market Report.

At 0831 GMT, November WTI crude oil is trading $69.16, down $1.00 or -1.44% and December Brent crude oil is at $78.69, down $0.60 or -0.76%.

Supply

According to the IEA, global oil supply grew by a record 100 million barrels per day (bpd) in August.

The IEA also said that higher output from OPEC managed to more than offset seasonal declines from non-OPEC members. The IEA forecasts non-OPEC production to grow by 2 million bpd in 2018 and 1.8 million bpd in 2019, characterized by “relentless growth led by record output from the U.S.”

In other news. August saw OPEC’s crude supply hit a nine-month high of 32.63 million bpd, despite concerns over falling production and slashed access in major producers Venezuela and Iran. Higher volumes from Nigeria and Saudi Arabia as well as increased production in Libya and Iraq served to outweigh these drops.

Demand

The IEA reported that global oil demand growth for 2018 and 2019 are unchanged, remaining at 1.4 million bpd and 1.5 million bpd, respectively.

According to the Organization for Economic Cooperation and Development (OECD), weaker demand in Europe, Asia, as well as higher gas prices in the U.S., put some downward pressure on the pace of demand growth, while shakiness in emerging markets over trade disputes and weakened currencies pose a risk to demand outlook for 2019. The OECD also said that America’s oil demand is set to post strong growth for 2018.

Forecast

The battle between the known and the unknown, between the aggressive speculators and professionals, continues on Thursday after a strong surge in prices the previous session has failed to attract enough new buyers so far today to continue the rally.

Early Wednesday, the catalyst driving the price action was concern over tight supply. This news was being supported by the unknown, or the compliance with the U.S. sanctions on Iran. The price action suggests investors still don’t know how much oil will be removed from supply when the sanctions begin in November. In August, OPEC’s second-largest producer saw near-record production at 4.65 million bpd.

All we really know at this time is that the trend is up and that buyers are coming in on the dips so we don’t expect prices to retreat too much lower. Furthermore, we don’t expect the trend to change to down. It’s all about positioning at this time. Traders are likely to maintain the upside bias because a disruption in any major producer could lead to a material impact on prices.

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