Oil Price Fundamental Daily Forecast – Switch to Oil for Heating Needs Expected to Boost Global Demand

AU.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday, but well off their lows of the session. Helping to weigh on prices are short-term concerns over rising U.S. crude oil and gasoline supply. Underpinning prices are a weaker U.S. Dollar and expectations of stronger future demand.

Another factor contributing to crude oil’s recent strength are reports saying soaring gas prices are likely to drive users to switch to oil for their heating needs this winter. That could boost global crude demand by several hundred thousand barrels per day (bpd) squeezing already tight supply.

At 13:05 GMT, December WTI crude oil is trading $76.77, down $0.29 or -0.38% and December Brent crude oil is at $80.98, down $0.10 or -0.12%.

US Crude, Gasoline Stockpiles Rise Last Week –EIA

U.S. crude oil and gasoline inventories rose last week as production rebounded as more offshore oil facilities returned from last month’s storm-related shut-ins, the Energy Information Administration (EIA) said on Wednesday.

Crude inventories rose by 2.3 million barrels in the week to October 1 to 420.9 million barrels, compared with analysts’ expectations in a Reuters poll for a 418,000-barrel drop.

U.S. gasoline stocks rose by 3.3 million barrels in the week to 225.1 million barrels, the EIA said, compared with analysts’ expectations for a 279,000-barrel drop. Distillate stockpiles, which include diesel and heating oil, fell by 396,000 barrels in the week to 129.3 million barrels, versus expectations for a 1 million-barrel drop, the EIA data showed.

Natural Gas Spike Set to Squeeze Crude Oil Market as Users Switch

The jump in natural gas prices is set to send the substitution of oil for gas to generate power to unprecedented levels, Swedish bank SEB has forecast. This could boost global crude demand by several hundred thousand barrels per day (bpd) squeezing already tight supply.

“This has never happened before at such a global scale. The market has always tried to substitute from costly oil to much cheaper natural gas,” Bjarne Schiedldrop, chief SEB commodities analyst, said.

“This is now totally turned around. The magnitude of the switching from natural gas to oil is hard to pinpoint but estimates are from 500,000 bpd or higher.”

Short-Term Outlook

Despite the early setback, buyers came on in on the dip in prices because they believe U.S. supply will remain tight over the mid-to-longer-term. We’re likely to see this pattern repeat in the future. The long-term trend is bullish but sometimes the market gets a little too pricey, which leads to short-term weakness.

The news of the substitution of crude oil for natural gas for power generation is a game-changer. This is the type of event that could send Brent crude oil prices to $100 per barrel. It all depends on the size of the demand boost.

Saudi Aramco CEO Amin Nasser put the demand boost at 500,000 bpd. JPMorgan analysts put the potential bump in global demand for oil-fired power generation as high as 2 million bpd but said a 750,000 bpd rise through March is more likely. The International Energy Agency offered a more conservative estimate of 150-200,000 bpd into the first quarter of next year.