Oil Price Fundamental Daily Forecast – Producers Still Struggling to Restart Operations

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Friday, which is helping to recapture some of this week’s losses. The catalysts behind the early strength are growing concerns over supply tightness in the United States in the wake of the damage from Hurricane Ida and as the possibility of improving U.S.-China trade relations bolstered demand for riskier assets.

At 09:32 GMT, December WTI crude oil futures are trading $68.56, up $0.95 or +1.41% and December Brent crude oil futures are at $71.79, up $1.00 or +1.41%.

Worries over supply balances and the Gulf’s offshore oil production are offsetting bearish news from China which hit the market hard on Thursday. Yesterday, sellers drove prices off their highs after China announced plans to sell state crude reserves in phases via public auction.

The announced sales will “better stabilize domestic market supply and demand, and effectively guarantee the country’s energy security,” the National Food and Strategic Reserves Administration said, adding that it plans to regularly release and replenish China’s oil reserves.

Shell Cancels U.S. Gulf Oil Cargoes, Refiners Seek Alternatives

Royal Dutch Shell Plc, the largest oil producer in the U.S. Gulf of Mexico, on Thursday canceled some export cargoes due to damage to offshore facilities from Hurricane Ida, signaling energy losses would continue for weeks.

About three-quarters of the Gulf’s offshore oil production remains halted since late August following Ida, one of the most devastating hurricanes for oil companies since back-to-back storms in 2005. Shell and other oil firms warned they could not yet say when full output would resume.

Almost 1.4 million bpd of offshore oil production remains shut and 1 million bpd of refining capacity is also offline. Refineries could fully recover before Gulf output goes. However, imported crude is plentiful, sources told Reuters.

EIA Reports Drop in U.S. Crude, Fuel Stocks

U.S. crude and fuel stocks all slumped last week as Hurricane Ida shut most of the country’s offshore production and numerous refineries, the Energy Information Administration said on Thursday.

Analysts had anticipated a sharp decline in inventories across all major categories, as offshore platforms were unable to deliver crude to the U.S. mainland, and as several refiners ceased operations. Roughly three-quarters of Gulf of Mexico offshore production is still closed, Reuters reported.

Crude inventories fell by 1.5 million barrels in the week to September 3 to 423.9 million barrels, compared with analysts’ expectations in a Reuters poll for a 4.6 million-barrel drop. Stocks are now at levels not seen since September 2019.

U.S. gasoline stocks fell by 7.2 million barrels, exceeding expectations for a 3.4 million-barrel drop.

Distillate stockpiles, which include diesel and heating oil, fell by 3.1 million barrels, versus expectations for a 2.6 million-barrel drop.

Refinery Crude Runs Pressured

The EIA also reported refinery crude runs fell by 1.6 million barrels per day in the last week. Refinery utilization rates fell by 9.4 percentage points, largely due to the shutdown of refiners in the U.S. Gulf. That region of the country saw overall utilization fall to 75.7% from 92.4% in the previous week, while the Midwest experienced a less dramatic drawdown of refining capacity.

U.S. weekly production fell to 10 million barrels per day from 11.5 million bpd the week earlier, due to the shutdown of offshore platforms.

Daily Forecast

The daily chart pattern suggests crude oil is developing an upside bias after forming a solid week-long support base. Prices could begin to move sharply higher if December WTI crude oil can overcome $70.00. For December Brent crude oil, the key level to overcome is $73.00.

Slow progress by U.S. Gulf of Mexico producers in restoring output after Hurricane Ida is expected to continue to provide support as well as strong gasoline demand. The markets could face headwinds, however, from a stronger U.S. Dollar.