Oil Price Fundamental Daily Forecast – Worries Over Rising US Production Offset by Winter Demand Expectations

James Hyerczyk
Published: Oct 19, 2021, 14:55 UTC

U.S. production from shale basins is expected to rise in November, according to a monthly U.S. report on Monday.

WTI and Brent Crude Oil

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U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed on Tuesday after posting a volatile two-sided trade earlier in the session. The markets are also trying to regain yesterday’s loss that was posted during the formation of a potentially bearish technical closing price reversal top. If anything, the chart pattern suggests the selling is a little greater than the buying at current price levels.

At 14:13 GMT, December WTI crude oil futures are trading $81.45, down $0.24 or -0.29% and December Brent crude oil is at $84.13, down $0.20 or -0.24%.

Traders are showing little reaction to the weaker U.S. Dollar, but helping to keep a lid on prices is the lingering threat of rising U.S. oil output. At the same time, prices are being underpinned by concerns that China may be unable to meet domestic demand for heating.

Rising US. Production Expectations Weighing on Market Sentiment

U.S. production from shale basins is expected to rise in November, according to a monthly U.S. report on Monday.

Oil output from the Permian basis of Texas and New Mexico was expected to rise 62,000 barrels per day (bpd) to 4.8 million bpd next month, the Energy Information Administration said in its drilling productivity report. Total oil output from seven major shale formations was expected to rise 76,000 bpd to 8.29 million bpd in the month.

Easing COVID-19 Restrictions and Colder Winter Expected to Boost Demand

“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts at ANZ Bank said in a note, adding gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

Predictions for a colder winter in the northern hemisphere are also expected to widen the current oil supply deficit. Additionally, without a significant increase in supply from OPEC+, coal, electricity and natural gas shortages should lead to additional demand for crude.

Japan, China at Forefront of International Fuel Crisis

Prime Minister Fumio Kishida said on Monday that Japan would urge oil producers to increase output and take steps to cushion the impact of surging energy costs on industry.

Chinese data showed third-quarter economic growth fell to its lowest level in a year hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

China’s daily crude processing rate in September also fell to its lowest level since May 2020 as a feedstock shortage and environmental inspections crippled operations at refineries, while independent refiners faced tightening crude import quotas.

Daily Forecast

Some weakness can be expected as the markets edge toward seven year highs, but the longer-term picture remains bullish.

Short-term U.S. production increases could slow down some buying, but current trade data suggests rising crude demand as economies recover from the pandemic.

Falling temperatures in the northern hemisphere are expected to keep oil, coal and natural gas prices elevated. The rising coal and natural gas prices in Asia are expected to cause some end-users to switch to lower-cost oil as an alternative. The will support our long-term outlook for $100 crude by late December or early 2022.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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