Oil Price Fundamental Weekly Forecast – Gasoline Glut, Iran Sanctions Balancing Prices

U.S. West Texas Intermediate and international benchmark Brent crude oil futures settled lower last week amid concerns over future demand. Worries flip-flopped from the prior week when traders were primarily concerned over supply issues. The shift in the price action and the fundamentals suggests traders are once again trying to find a balance point on the charts.

For the week, October WTI crude oil settled at $67.75, down $2.05 or -2.94% and December Brent crude oil closed at $76.47, down $0.93 or -1.22%.

Supply Worries

Throughout the week, the price action was influenced by concerns over rising supply from OPEC and the United States. Output from OPEC rose by 220,000 barrels per day (bpd) between July and August, to a 2018-high of 32.79 million bpd. The rise in output was fueled by a recovery in Libyan production and strong Iraqi exports.

Traders were saying that rising U.S. production could become an issue after Baker Hughes reported on August 31 that U.S. drillers added oil rigs for the first time in three weeks. The rig count increased by 2 units to 862. Furthermore, in August, the U.S. Energy Information Administration reported that U.S. crude oil production hit a record 11 million bpd.

Demand Concerns

One issue bothering bullish traders is the risk of declining Chinese demand for oil. According to CNBC, Middle East officials are worrying more about China at this time than Iran’s supply curbs as a result of U.S. sanctions.

Bahrain and Oman’s oil and gas ministers both told CNBC Monday that China’s demand for oil could decline on the back of its trade dispute with the U.S. that has seen tariffs imposed on a wide range of Chinese imports.

The bearish tone spilled over to Thursday with the release of the U.S. Energy Information Administration’s weekly inventories report.

Weekly EIA Inventories Report

On Thursday, the markets were driven lower by a two-sided government inventories report. The U.S. Energy Information Administration (EIA) reported that U.S. commercial crude oil inventories fell by 4.3 million barrels to 401.49 million barrels in the week to August 31, the lowest since February 2015. This was the bullish news.

The bearish news, which drove prices sharply lower, was a 1.8 million barrel rise in gasoline stocks. Distillate stockpiles also contributed to the losses with a 3.1 million barrel increase during the week-ending August 31.

The EIA also said U.S. crude oil production last week remained at a record 11 million barrels per day (bpd), a level it has largely been at since July.

In other news, according to Baker Hughes, the total of active crude oil rigs fell by 2 to 860.

Forecast

The price action last week suggests that traders are still trying to find a balance point on the charts to satisfy both bullish and bearish traders. Since mid-August, crude oil has been driven higher by worries about a supply shortage and a weakening U.S. Dollar. Last week, prices were driven lower by too much supply and worries over global demand. A stronger dollar and weaker U.S. equity markets also weighed on prices.

I expect the headlines to continue to produce both bullish and bearish results so prices are likely to continue to be rangebound until the start of the Iran sanctions on November 1.

The wild card the next few weeks could be supply disruptions due to potential hurricane activity in the Gulf of Mexico. As of early Friday, traders are tracking as many as three tropical storms in the mid-Atlantic. It’s a little too early to tell if or when they will make landfall, but it is something to start watching.