Oil Price Fundamental Daily Forecast – Refined Product Demand Supporting WTI; Focus Shifts to API Report Late in Session

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed early Tuesday after posting decent gains the previous session. The U.S. market is performing slightly better and the international contract is trading marginally lower.

At 0655 GMT, October WTI crude oil futures are trading $65.50, up $0.08 or +0.11% and October Brent futures are at $72.13, down $0.08 or -0.11%.

The price action suggests investors are waiting for fresh news. The supply situation caused by the Iranian sanctions seems to have stabilized. Investors are still trying to figure out the size of the cut in exports, but the real figure may not be known until November 1. In the meantime, the increased production from OPEC and other major non-OPEC producers seems to be alleviating any shortage concerns.

As far as demand, all of the news in my opinion, has been speculation that if the global economy stalls, demand will drop. This puts great emphasis on the next growth report from China. A bearish report will send a strong signal that demand will fall in the future. In the meantime, the balance between supply concerns and demand concerns could lead to a sideways trade.

The early price action this week suggests that Tuesday’s American Petroleum Institute’s weekly storage report and Wednesday’s U.S. Energy Information Administration’s weekly inventories report will set the tone of the market this week.

Forecast

WTI prices could strengthen today if traders continue to buy into the notion that U.S. markets will tighten in the coming months. According to reports, bullish traders are banking on seasonally low inventories of refined products such as diesel and heating oil to boost prices, given that they are both at their lowest levels in four years.

Furthermore, the low inventories are occurring just ahead of the peak demand period for these fuels, with diesel needed for tractors to harvest crops and the arrival of colder weather during the Northern Hemisphere autumn raising consumption of heating oil.

At the same time, Brent is feeling pressure after the United States offering on Monday of 11 million barrels of crude from its Strategic Petroleum Reserve (SPR) for delivery from October 1 to November 30. The released oil could offset expected supply shortfalls from U.S. sanctions against Iran, which will target its oil industry starting November 1.

Longer-term, the direction of crude prices will depend on demand because supply seems to be plentiful. According to energy services firm Baker Hughes, the search for new oil has increased globally in the last two years, with the worldwide rig count rising from 1,013 at the end of July 2016 to 1,664 in August 2018.