Oil Price Fundamental Daily Forecast – Potential Supply Disruption in Middle East Underpinning Prices

Potential supply disruptions due to high tensions in the Middle East are expected to continue to underpin prices although Brent crude oil should be the stronger of the two futures contract. Helping to keep a lid on WTI crude oil are worries over rising inventories.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Thursday as heightened tensions in the Middle East increased fears of a supply disruption, offsetting concerns over rising U.S. crude inventories. Overall, the markets remained underpinned by the OPEC-led supply cuts and the U.S. sanctions against Iran and Venezuela. Both futures contracts are in a position to finish higher for the week.

At 10:05 GMT, July WTI crude oil futures are trading $62.57, up $0.33 or +0.53% and July Brent crude oil is at $71.99, up $0.22 or +0.29%.

The spotlight has been on Brent crude oil this week with the international benchmark in a position to post its biggest weekly gain in six weeks. So far the rally has been headline driven with no signs of an actual supply disruption at this time. Speculative buyers have been taking action due to reports of an evacuation of U.S. personnel from the U.S. embassy in Baghdad on Wednesday. Military personnel is also on high alert due to perceived threats from Iran.

Shippers and Refiners at Risk

The market has been underpinned since early in the week following an attack on four oil tankers in the Gulf on Sunday. Shortly thereafter, Saudi Arabia announced that armed drones hit two of its oil pumping stations.

Asian shippers and refiners have also put ships heading to the Middle East on alert and are looking for a jump in marine insurance premiums after the attacks. This may have prompted Japanese Prime Minister Shinzo Abe to tell Iran’s Foreign Minister Mohammad Javid Zarif he was concerned the situation in the Middle East “is becoming very tense”.

U.S. Energy Information Administration Weekly Inventories Report

On Wednesday, the EIA reported that crude stocks swelled by 5.4 million barrels. The increased caught traders off-guard because analysts were looking for a decrease of 800,000 barrels for the week-ended on May 10. This pushed U.S. crude inventories to their highest level since September 2017. Gasoline stockpiles decreased more than forecast.

Daily Forecast

Potential supply disruptions due to high tensions in the Middle East are expected to continue to underpin prices although Brent crude oil should be the stronger of the two futures contract. Helping to keep a lid on WTI crude oil are worries over rising inventories.

Prices could spike higher if there is actual military activity between the U.S. and Iran, or further attacks on Saudi Arabia infrastructure or supply ships in the region.

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