Oil Price Fundamental Daily Forecast – Firm Trade as Markets Adjust to Potential for Lower Supply

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading nearly 3% higher early Friday on mounting fears that a supply disruption in the Middle East could take weeks to resolve, which would squeeze supplies of crude and refined products. Nonetheless, the markets remain in a position to post their third consecutive weekly lower close amid a bearish demand outlook due to fresh coronavirus lockdowns in Europe.

At 09:35 GMT, May WTI crude oil is trading $59.71, up $1.15 or +1.96% and June Brent crude oil is at $62.93, up $1.13 or +1.83%.

Fears of Supply Tightness Due to Suez Blockage Providing Support

Prices are rising on escalating fears that it could take weeks to dislodge a giant container ship blocking the Suez Canal, threatening to curtail supplies of energy products.

According to Reuters, the trapped container ship is blocking traffic in one of the world’s busiest shipping channels for oil and refined fuels, grain and other trade between Asia and Europe. Officials stopped all ships entering the canal on Thursday, and a salvage company said the vessel may take weeks to free.

Reuters also reported that of the 39.2 million barrels per day (bpd) of total seaborne trade in crude in 2020, 1.74 million bpd went through the Suez Canal, according to tanker tracking firm Kpler. Additionally, 1.54 million bpd of refined oil products such as gasoline and diesel fuel flow through the canal, about 9% of global seaborne product trade, Kpler said.

Geopolitical Risks Providing Additional Support

The oil markets were also lifted by worries over escalating geopolitical risk in the Middle East. Yemen’s Houthi forces on Friday said that they launched attacks a day earlier on Saudi Arabia targeting facilities owned by state-owned oil company Saudi Aramco and military sites.

OPEC+ Expected to Maintain Current Output Levels

OPEC+ is scheduled to meet on April 1 to decide on May supplies, and the producer group’s sources told Reuters they expected the group to broadly stick to current lower levels, as the outlook for demand has deteriorated due to new lockdowns in Europe.

This news should come as no surprise since Saudi Arabia suggested last month that OPEC and its allies were not likely to make any changes to policy until the number of coronavirus cases had dropped to containment levels.

Short-Term Forecast

Prices are likely to remain underpinned until the market adjusts to the potential drop in supply or the ship blocking the Suez Canal is freed ahead of schedule.

At this time, fears of supply tightness are outweighing concerns over weak demand due to lockdowns in Europe and Asia. The ship could be freed in days or weeks, but the COVID-19 lockdown could last weeks or months. This continues to give the market a downside bias.

For a look at all of today’s economic events, check out our economic calendar.