Oil Price Fundamental Daily Forecast – Heightened Volatility Over Depleted Cushing Supply, New COVID Concerns
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday, but well-off their lows. Nonetheless, the early selling pressure changed the daily trend to down. The intraday recovery, however, suggests the change in trend was fueled by profit-taking and that buyers would be willing to come back into the market if the price was right.
This week’s weakness isn’t being fueled by a significant shift in the bullish fundamentals, but anytime crude oil supply rises especially five week in a row, traders are going to sit up, take notice and reassess the supply/demand situation. Furthermore, renewed concerns over a COVID-surge could also be limiting gains.
US Crude Stocks Rise More than Expected, Cushing Hub Plunges – EIA
U.S. crude stocks rose more than expected in the latest week, the government reported on Wednesday, but inventories at the Cushing, Oklahoma, storage hub dropped sharply again, suggesting markets remain tight due to steady demand and stagnant production, Reuters reported.
Crude inventories rose 4.3 million barrels to 430.8 million barrels the week-ending October 22, according to the U.S. Energy Information Administration (EIA). This number was well-above the 1.9 million barrels analysts had expected.
U.S. gasoline stocks fell by 2 million barrels in the week to 215.8 million barrels, lowest since 2017, the EIA said. Distillate stockpiles, which include diesel and heating oil, fell by 432,000 in the week to 125 million barrels.
Renewed COVID-19 Concerns Threaten Recoveries in Europe, Russia and China
Some of the profit-taking this week is being fueled by rising cases of COVID-19 in Europe, Russia and China, which are threatening hopes for an economic recovery.
Concerns over an outbreak in China are drawing the most attention. The country has reported nearly 250 locally transmitted cases of COVID-19 since the start of the current outbreak 10 days ago, with many infections in remote towns along porous international borders in the country’s northwest.
China had 50 new local cases for October 26, the highest daily count since September 16, official data showed on Wednesday.
“A surge in new cases of COVID-19 threatens to disrupt the recovery in oil demand,” ANZ Research commodities strategists Daniel Hynes and Soni Kumari said in a new report on Thursday.
One bullish takeaway in the EIA report is that WTI crude storage at the Cushing, Oklahoma delivery hub is likely to stay low for months.
Another takeaway is that despite the fall in stocks at Cushing, the Gulf Coast’s inventories rose to 247 million barrels in the week, partly due to a net increase in imports which hit their highest since June.
Nonetheless, the massive drawdown in the main futures hub at Cushing has the potential to develop into a major problem.