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Oil Price Fundamental Daily Forecast – Onset of Early Cold Weather Could Be Next Bullish Catalyst

By:
James Hyerczyk
Published: Oct 26, 2021, 07:21 UTC

The primary support for the crude oil market at this time is the strong demand in the United States.

WTI and Brent Crude Oil

In this article:

U.S. West Texas Intermediate and International-benchmark Brent crude oil futures are inching lower early Tuesday after running into multi-year resistance the previous session. Today’s early weakness isn’t being fueled by any major fundamental shift. The price action merely suggests bullish traders may be taking a breather ahead of today’s oil industry inventories report.

At 06:43 GMT, December WTI crude oil futures are trading $83.61, down $0.15 or -0.18% and December Brent crude oil is at $85.90, down $0.09 or -0.10%.

Primary Driver of Rally:  Strong US Fuel Demand

The primary support for the crude oil market at this time is the strong demand in the United States. Earlier in the month, the market was underpinned by China’s red-hot power and coal markets that encouraged power generators to switch from these fuels to burning crude oil. However, conditions in China, Europe and other parts of Asia have cooled somewhat, pushing U.S. fuel demand to the forefront.

Keeping with the bullish theme, forecasts calling for colder temperatures are currently grabbing the headlines. This is significant because a colder November will tighten global supply conditions further likely triggering a switch back to crude oil by power generators. Goldman Sachs estimates that the switching to oil from gas may add 1 million barrels per day (bpd) to oil demand.

Meanwhile, according to reports gasoline and distillate consumption is back in line with five-year averages in the United States after more than a year of depressed demand.

Gasoline Supply Starts Week at Two-Year Low

Traders will be closely monitoring Tuesday’s weekly inventories report from the American Petroleum Institute (API) and Wednesday’s Energy Information Administration (EIA) weekly inventories numbers. Early estimates have crude oil stockpiles rising 1.7 million barrels during the week-ending October 22. Traders will be putting more emphasis on the fuel numbers, however, with gasoline and distillate inventories expected to fall.

A rise in crude inventory is likely to be shrugged-off if gasoline supply falls significantly. In its October 15 inventories report, supplies of gasoline hit a two-year low and inventories at the largest U.S. commercial storage hub dropped to a three-year low, according to the EIA.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 2.3 million barrels to 31.2 million barrels. That’s the lowest level since October 2018, and points to tightness in the market that may take some time to alleviate.

Daily Forecast

We could see some issues with value as the markets test key multi-year tops, but any pullback should be short-lived. Some buyers paused on worries about new supply from Iran also, but those factors shouldn’t be significant enough to derail the rally. Renewed concerns over COVID-19 and its potential impact on demand could create some headwinds but the reaction is not likely to be as strong as previous COVID-related sell-offs.

This week’s bullish start to the week has put $90 WTI and $100 Brent back on the radar.

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

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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