Oil Price Fundamental Daily Forecast – Supported by Quarterly Production Declines from Major Players

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher early Tuesday. Some traders are saying that production declines at the world’s largest oil producers during the third quarter are underpinning prices. Others say we could be looking at technically-fueled short-covering after a 10-day sell-off, or position-squaring ahead of today’s American Petroleum Institute (API) weekly inventories report.

At 08:27 GMT, November WTI crude oil is trading $54.71, up $0.64 or +1.20% and December Brent crude oil is at $59.96, up $0.71 or +1.20%.

On the other side of the coin, gains are likely being capped by a resumption in Saudi supply and demand concerns due to a global economic slowdown caused by the lingering U.S.-China trade war.

Quarterly Output Declines in US, Russia, OPEC

U.S. crude oil output fell 276,000 bpd in July to 11.81 million bpd as federal offshore Gulf of Mexico production weakened, according to a U.S. Energy Information Administration (EIA) monthly report released on Monday.

Russia’s output declined to 11.24 million bpd in September 1-29, down from 11.29 million bpd in the previous month, sources said, although it is still above the quota set in an output deal between Russia and OPEC.

OPEC’s output fell to the lowest in eight years in September at 28.9 million bpd, down 750,000 bpd from August’s revised figure and the lowest monthly total since 2011, a separate Reuters survey found. The drop was likely fueled by the shutdown of Saudi Arabian oil production due to the attacks on their oil facilities on September 14.

Saudi Aramco Restored to Full Capacity

Saudi Aramco last week restored to full capacity to the level before the attacks on its oil facilities, Ibrahim Al-Buainain, chief executive officer of its trading arm, said on Monday at a conference in the United Arab Emirates.

The world’s top oil exporter Saudi Arabia has restored capacity to 11.3 million barrels per day (bpd) after the attack knocked out 5.7 million bpd of the kingdom’s output, sources told Reuters last week.

Daily Forecast

With the Saudi’s restoring capacity to pre-attack levels, it makes sense that Brent and WTI crude oil are trading at or near levels last seen on September 13. Now with market fears of broader escalating tensions in the Middle East fading somewhat, additional upside pressure is likely to ease. This is likely to keep a lid on prices. At the same time, the lower production numbers are likely to provide some support. This suggests a sideways or rangebound trade.

However, don’t forget about the demand picture. We’re likely to get more clarity on that following the US-China meeting on October 10-11. Positive developments at that time could trigger a short-covering rally, while another collapse in talks will keep a steady flow of downside pressure on prices.

Later today at 20:30 GMT, the API will release its latest weekly inventories figures. The report is expected to show that U.S. crude oil stockpiles likely rose 1.1 million barrels the week-ending September 27, while distillate stocks probably softened.