Oil Price Fundamental Daily Forecast – Putin’s Supply Threat Spooks Weaker Short-Sellers

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished sharply higher on Friday and nearly up for the week as supply threats offset concerns over weaker demand.

Prices fell to a seven-month low earlier in the week, putting the market in a position to post about a 3 percent loss for the week, but those losses were nearly recovered late in the session on Friday.

On Friday, October WTI crude oil futures settled at $86.79, up $3.25 or +3.89% and December Brent crude oil closed at $91.71, up $3.46 or +3.92%. The United States Oil Fund ETF (USO) settled at $71.11, up $3.02 or +4.43%.

Supportive Factor One: OPEC+ Output Cut

Prices were supported early in the week when OPEC+ members agreed to a small production cut of 100,000 barrels per day to bolster prices.

The 100,000 bpd reduction by OPEC+ amounts to only 0.1% of global demand. The group also agreed they could meet any time to adjust production before the next scheduled meeting on October 5.

The move by OPEC+ is being described as “symbolic”, but probably explains why there wasn’t much of a follow-through to the upside after the initial bullish reaction on Monday. Some say the group was trying to put a floor in Brent crude oil at about the $90 level but that attempt failed miserably on a gloomy demand outlook.

We’ll have to wait until next week to see if Friday’s rebound rally continues, but OPEC and its allies may have missed a chance to shore up the market at this time because subsequent movement later in the week suggests that weakening demand could eventually dominate the market, driving prices lower.

Supportive Factor Two: Russia’s Threat to Cut Off Energy Supplies

While OPEC+’s attempt to stop the recent price slide failed to impress the short-sellers, President Vladimir Putin’s threat to cut off all energy supplies if price caps are imposed on Russia’s oil and gas exports, seemed to be strong enough to spook the weaker shorts while erasing nearly two days of selling pressure.

Short-Term Outlook

Bullish traders are locked in on Putin’s threat to supply, while the bears are waiting for a global recession and lower demand. The short-term direction will likely be determined by what comes first.

Will Putin follow-through on his threat to cut-off energy supplies before the world falls into recession? Or will the recession start first? Or can the central banks control the expected economic weakness enough to create a “soft-landing” and a quick recession.

These answers to these questions are important because they could mean the difference between $90 – $100 a barrel Brent crude and $60 – $50 a barrel oil.