Oil Price Fundamental Daily Forecast – Firm ahead of EIA Report Amid Tightening Supply, Improving Demand
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are nudging higher on Wednesday shortly before the release of a government report that is supposed to show another drop in supply.
Meanwhile, late Tuesday, an industry report showed U.S. crude inventories fell more than expected last week in the wake of two hurricanes, bringing to the forefront signs of tightening supply and improving demand.
Additionally, prices were also supported as some OPEC members struggle to raise output and by a general sense of energy market shortages amid a power and gas crisis in Europe, Reuters reported.
American Petroleum Institute Weekly Inventories Report
The American Petroleum Institute (API) late Tuesday reported a draw in crude oil inventories of 6.108 million barrels for the week ending September 17. Analysts were expecting a decline of 2.400 million barrels for the week.
The API also reported a draw in gasoline inventories of 432,000 barrels for the week-ending September 17 – compared to the previous week’s 2.761-barrel draw. Distillate stocks saw a decrease in inventories this week of 2.720 million barrels for the week, compared to last week’s 2.888-million-barrel decrease.
Cushing inventories fell this week by 1.748 million barrels after last week’s 1.345-million barrel decrease.
OPEC+ Struggles to Pump More Oil to Meet Rising Demand
OPEC and its allies struggled again to pump enough oil in August to meet global demand as it recovers from the coronavirus pandemic, potentially adding to upward pressures on oil prices, Reuters reported.
Several OPEC+ members such as Nigeria, Angola and Kazakhstan have struggled in recent months to raise output due to years of under-investment or large maintenance work that has been delayed by the COVID-19 pandemic.
On Tuesday, two OPEC+ sources told Reuters OPEC+ compliance with oil production cuts rose to 116% in August. The figure, which excludes Mexico, compares with 109% in July, and comes as the group boosted production by 400,000 barrels per day in August and September.
Production data for August shows that the main under-producers were African OPEC members Nigeria and Angola and non-OPEC member Kazakhstan.
Prices are currently being underpinned by low supply and rising demand. They could rise even further if the U.S. Energy Information Administration’s weekly inventories report shows a bigger than expected draw in crude supplies. Ahead of the report, traders are looking for a 3.3 million barrel drawdown.
Longer-term, the inability of some members of OPEC+ to raise output to agreed levels suggests a supply gap could develop as the group proceeds with a plan for monthly output increases to unwind the rest of record supply cuts made in 2020. This would provide longer-term support for crude prices.