Oil Price Fundamental Daily Forecast – Tightening Supplies, Strong Demand Providing Support

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher early Thursday. U.S. crude is hovering near the $72.00 level. Brent is within striking distance of the psychological $80.00 level, a price not traded since November 2014. Tightening supplies and strong demand is providing the support.

At 0745 GMT, July WTI crude oil is trading $71.84, up $0.28 or +0.39% and July Brent crude oil is at $79.53, up $0.25 or +0.32%.

Additional support is being provided by geopolitical risks and an unexpected fall in inventories.

On Wednesday, the U.S. Energy Information Administration reported that U.S. crude inventories dropped by 1.4 million barrels in the week to May 11, to 432.34 million barrels.

Not all the news was bullish on Wednesday, the International Energy Agency (IEA) said on Wednesday that it had lowered its global oil demand growth forecast for 2018 from 1.5 million barrels per day (bpd) to 1.4 million bpd.

The IEA also said global demand would average 99.2 million bpd in 2018. Additionally, the IEA said although supplies currently only stand at 98 million bpd due to supply cuts led by OPEC, the IEA said that “strong non-OPEC growth…will grow by 1.87 million bpd in 2018.”

Forecast

The spread between internationally-favored Brent crude oil and U.S. WTI crude oil continues to widen. This makes sense since the U.S. sanctions against Iraq are likely to lead to some supply disruption although we may not see the full impact of the supply reductions until November. This news is supportive from Brent crude.

They say all ships will rise with the tide and this may be the case with crude oil, but don’t expect WTI crude oil to rise as fast as Brent crude oil. This is because of surging U.S. production, which now sits at a record 10.72 million bpd.

Traders are also saying that United States production is ready to overtake Russia production. Additionally, as a result of surging production, U.S. crude is increasingly appearing on global markets as exports.

There is a bullish tone developing in the market today, but this is probably because investors are supporting the markets on dips. Investors seem to be reluctant about buying strength or taking out offers. This is a sign that there are sellers in the market.

We’re looking at a developing battle between long-term bulls, who are betting on support from supply disruptions, and short-term bears, who expect prices to be capped or even weaken due to increasing U.S. production.