Oil Price Fundamental Daily Forecast – Higher Until OPEC+ Ups Production, or the Saudis Cover Any Shortfalls
U.S. West Texas Intermediate and international benchmark Brent crude oil futures are plowing higher early Tuesday for a sixth straight session on the back of tightening supply. There’s also talk that soaring liquefied natural gas (LNG) and coal prices may force users to switch to crude oil for fuel.
Additionally, the recovery from the damage from Hurricane Ida is taking longer than expected, while demand is picking up due to easing lockdown measures and the wider rollout of COVID-19 vaccinations.
Later today at 20:30 GMT, traders will get a chance to react to the latest inventories data from the American Petroleum Institute (API). On Wednesday, it will be the U.S. Energy Information Administration’s EIA turn to report.
Not only is the impact of back-to-back Hurricanes Ida and Nicholas still wreaking havoc on U.S. supply by shutting most offshore production for weeks, but now the industry is expecting reduced output from OPEC members Nigeria and Angola that could extend into at least next year.
As OPEC Reopens the Taps, African Giants Losing Race to Pump More
Top African oil exporters Nigeria and Angola will struggle to boost output to their OPEC quota levels until at least next year as underinvestment and nagging maintenance problems continue to hobble output, sources at their respective oil firms told Reuters.
Their battle mirrors that of several other members of the OPEC+ group who curbed production in the past year to support prices when COVID-19 hit demand, but are now failing to ramp up output to meet soaring global fuel needs as economies recover.
OPEC and its allies agreed in July to add 400,000 barrels per day (bpd) to production from August until December 2021, slowly phasing out the unprecedented supply cuts.
However, Nigeria and Angola have under-produced by an average of 276,000 bpd so far this year out of their combined average OPEC quota of 2.83 million bpd according to Refinitiv data. They are likely to remain below quota through the end of the year, according to the industry sources and Reuters calculations.
The markets are being supported by strong momentum and traders seem to be willing to buy strength.
Although we could see some short-term downswings due to profit-taking, position-squaring or even the stronger U.S. Dollar, we don’t expect to see a major sell-off unless OPEC+ or Saudi Arabia announces it is willing to increase production to offset the shortfalls from Nigeria and Angola.