Oil Price Fundamental Daily Forecast – Production Losses Offsetting Concerns Over Weak Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Thursday, supported by output shutdowns in the U.S. Gulf of Mexico and the prospect of more supply losses in Norway, as well as by hopes for some U.S. coronavirus relief aid. The news is offsetting yesterday’s bearish U.S. Energy Information Administration (EIA) weekly inventories report.

At 09:17 GMT, December WTI crude oil is trading $40.83, down $0.60 or -1.49% and December Brent crude oil is at $42.69, down $0.70 or -1.67%.

Hurricane Concerns

Oil and gas workers have withdrawn from offshore U.S. Gulf production facilities as Hurricane Delta was forecast to intensify into a powerful, Category 3 storm. Nearly 1.5 million barrels of daily output was halted.

There are some forecasts that say cooler water temperatures in the northern Gulf could weaken the storm before landfill. If Delta does weaken, the rally could fizzle-out.

Strike in Norway Carries On

Oil also gained support from the prospect of more production outages in the North Sea because of a workers’ strike. The Johan Sverdrup field, the North Sea’s largest, will have to shut production unless the strike ends by October 14.

The strike could knock out almost a quarter of the country’s petroleum production by October 14, operators say, raising the prospect of further price rises on the international oil market.

Six offshore oil and gas fields shut down on Monday as Lederne ramped up its strike, cutting output capacity by 8%, or around 330,000 barrels of oil equivalent per day (boepd), the Norwegian Oil and Gas Association (NOG) said.

Another six oil and gas fields could fully or partly close by October 14, including the Ekofisk platform, the industry has said.

The biggest outage would be Equinor’s John Sverdrup oilfield, the North Sea’s largest with an output capacity of up to 470,000 barrels of oil per day, Equinor said on Wednesday.

US Energy Information Administration Weekly Inventories Report

U.S. crude oil stockpiles rose modestly, in line with expectations, while gasoline and distillate inventories dipped last week, the Energy Information Administration said on Wednesday.

Crude inventories rose by 501,000 barrels in the week to October 2 to 492.9 million barrels, compared with analysts’ expectations in a Reuters poll for a 294,000-barrel rise.

U.S. gasoline stocks fell by 1.4 million barrels in the week to 226.80 million barrels, their lowest since November of last year, compared with expectations for a 471,000-barrel drop.

Distillate stockpiles fell by 962,000 barrels, in line with expectations.

Daily Forecast

WTI and Brent crude oil futures will move as high as speculators are willing to take them, while keeping in mind that the hurricane impact will vanish in about 3 – 4 days and the strike could end within 7 – 10 days. In other words, these are not going to be long-term bullish events.

Meanwhile, the U.S. stimulus plan is still up in the air, COVID-19 demand issues still linger, global supplies are high and OPEC now faces a new challenge from rising output in Libya, an OPEC member exempted from cutting output.

All of the above factors are likely to cap gains, and could drive prices lower once the hurricane and strike are in the books.