Oil Price Fundamental Daily Forecast – Hurricane-Driven Supply Disruption Underpinning Prices

U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading higher early Tuesday, continuing to recover from Monday’s early session setback. Traders are saying the catalyst behind today’s strength is renewed concerns over crude exports from Iran. Additionally, the sudden formation of a hurricane in the Gulf of Mexico is creating worries for Gulf Coast refineries.

At 0633 GMT, December WTI crude oil futures are trading $74.58, up $0.41 or +0.55%, and January Brent crude oil is at $83.98, up $0.44 or +0.53%.

Speculators also helped the markets recover from early session weakness as they increased long bets in response to China’s attempt to stimulate the economy.

The primary market driver, however, is a report which showed Iran’s crude exports fell further in the first week of October, according to taker data and an industry source. The decrease apparently was fueled by buyers seeking alternatives ahead of the start of U.S. sanctions on November 4. This report renewed concerns over OPEC’s ability to cover a widely expected shortfall in supply.

The details provided by Refinitiv Eikon showed the Islamic Republic exported 1.1 million barrels per day (bpd) of crude last week. An industry source also said October shipments were so far below 1 million bpd.

The reports of 1.1 million or less is well below the 2.5 million bpd reported in April before the Trump administration said it would renew the sanctions. In September, Iran exported 1.6 million bpd.

On Monday, crude oil prices fell early in the session in response to a report that Saudi Arabia stands ready to replace all of the oil lost because of the sanctions. The Saudi’s also said that it plans to lift crude output next month to 10.7 million bpd, a record.

Forecast

Crude oil direction over the next month will be determined by how much Iran exports and whether Saudi Arabia can replace the lost output. Iranian oil exports are declining fast, and the Saudi’s have to find a way to increase production quickly. At the same time, Iran’s Oil Minister Bijan Zanganeh on Monday called a Saudi claim that the kingdom could replace Iran’s crude exports “nonsense.”

We’ve known for month’s that the crude oil market is fragile at this time and that any supply disruption could fuel another leg up in the rally. This theory will be tested this week with the shutdown of 19 percent of oil production in the Gulf of Mexico due to rapidly approaching Hurricane Michael.

Several models call for the Hurricane to miss major producing assets in the Gulf, but any change of track could widen the impact.

Hurricane fears are likely to drive the price action on Tuesday. Late in the session, traders will get the opportunity to react to the latest data from the American Petroleum Institute.

Additionally, don’t forget about demand either. Early Tuesday, the International Monetary Fund cut its global economic growth forecasts for 2018 and 2019, saying that trade policy tensions and rising import tariffs were taking a toll on commerce while emerging markets struggle with tighter financial conditions and capital outflows.