Oil Price Fundamental Daily Forecast – Lower Coal, Gas Prices Could Trigger Short-Term Drop of $3.00 – $4.00

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Friday as demand for oil products in power generation eased amid weaker coal and gas prices. Meanwhile, a forecast for a mild U.S. winter dampened concerns over potential shortages of heating fuels late this year and early next.

At 07:19 GMT, December WTI crude oil is trading $82.31, down $0.19 or -0.23%. This puts the U.S. benchmark slightly above last week’s close at $81.73.  December Brent crude oil is at $84.48, down $0.13 or -0.15%. It is currently trading lower for the week.

European Gas Prices Fall as Drop in Coal Markets Offsets Higher Demand

British and European wholesale gas prices mostly fell on Thursday, driven by losses in the coal market that trumped forecasts of higher demand amid colder weather and less wind. Gas was taking its cue from a drop in the coal market, with gas flows and weather forecasts moving sideways, a trader told Reuters.

Dutch wholesale gas prices for November were under pressure as well as first quarter U.K. gas prices. Meanwhile, China’s thermal coal futures fell the maximum permitted 11% on Thursday, after Beijing signaled it might intervene to cool surging prices that have led to power shortages across much of the country. Consequently, European coal contracts also fell.

Additionally, the British gas system was forecast 9 million cubic meters (mcm) per day over-supplied on Thursday morning, according to National Grid.

NOAA Forecast of Mild US Winter Spurs Retreat from Multi-Year Highs

Oil prices are being capped by a forecast calling for a warm U.S. winter despite lingering concerns over tight supply and a global energy crunch.

Winter weather in much of the United States is expected to be warmer than average, the National Oceanic and Atmospheric Administration (NOAA) said Thursday.

“The report, indicating drier and warmer conditions across the southern and eastern U.S., is putting pressure on the complex,” said Bob Yawger, director of energy futures at Mizuho.

Tight US, OPEC+ Supply Expected to Remain Supportive

Prices rallied on Wednesday and Thursday in reaction to the U.S. Energy Information Administration weekly report that showed tighter crude and fuel inventories. Additionally, crude stocks at the Cushing, Oklahoma futures hub fell to a three-year low.

Supply is likely to remain tight over the near-term as OPEC+ is likely to stick to its plan for gradual output increases while demand is expected to reach pre-pandemic levels.

Daily Forecast

Lower coal and gas prices as well as technically overbought conditions could help erase the premium that had been built into the market due to expectations of a power switch from gas and coal to crude oil for heat generation. That’s a fancy way of saying prices are likely to be under pressure on Friday.

Brent crude oil is already trading lower for the week and WTI could follow shortly. Conditions appear to be ripe for a $3.00 to $4.00 correction over the short-run.