Oil Price Fundamental Daily Forecast – Worries Over Tightening Supplies Driving Price Action

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher early Tuesday, while rapidly approaching four-year highs. Worries over tightening supplies are driving the price action.  The catalysts behind the tightening are looming sanctions against Iran, which are expected to limit world supply and unwillingness by OPEC and its allies to raise output to offset the widely expected short-fall.

At 0505 GMT, November WTI Crude Oil futures are trading $72.24, up $0.16 or +0.22% and December Brent Crude Oil is at $80.76, up $0.23 or +0.29%.

The back drop:  Starting on November 4, the U.S. will target Iran’s oil exports with sanctions. This is expected to remove between 1 million and 1.5 million barrels per day (bpd) of crude oil supplies from the market.

Several months ago, OPEC+ (the name given to OPEC and its allies) agreed to increase output about 1.4 million barrels per day to cover the expected shortage. However, recently, speculators have stepped up buying on increased bets that this amount won’t be enough to fill in the gap between supply and demand.

Furthermore, the oil markets remain fragile and extremely vulnerable to any supply disruptions which would include pipeline outages, lower production from Venezuela and violence in Nigeria and Libya.

Late last week, President Trump demanded that OPEC and Russia do something to increase supply. So far, however, both have refrained from taking any action.

Forecast

Prices are expected to remain underpinned over the near-term because the supply issues are not expected to go away. It seems that only a drop in demand will stop prices from rising significantly.

For months, Saudi Arabia had led investors to believe that it was comfortable with Brent crude oil at about $80 per barrel. However, reports surfaced last week saying that it now would have no problem with Brent trading north of $80 per barrel. This seems to have greenlit the latest round of buying.

Some analysts believe oil could trade as high as $90 per barrel over the near-term because they don’t believe OPEC+ can actually raise output significantly in the near-term, as the physical spare capacity in the system is not that high.

Later today, traders will get the opportunity to react to the latest supply figures from the American Petroleum Institute. It is expected to report a 2.1 million barrel draw. Anything higher than the estimate could spike prices even higher.