Oil Price Fundamental Weekly Forecast – Strike Over, Platforms Survive – Demand Destruction Moves to Forefront

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished sharply higher last week with the rally driven by worries over a disruption in supply. The catalysts driving prices higher were a strike in Norway and production shutdowns tied to Hurricane Delta.

However, don’t count on the same factors driving prices higher this week. Firstly, the strike in Norway is over. Secondly, the hurricane has passed the platforms and progress is already being made to bring them back on line and thirdly, the coronavirus pandemic is showing no signs of letting up, which should keep the pressure on demand.

Last week, December U.S. WTI crude oil futures are trading $40.91, up $3.57 or +9.56% and December Brent crude oil closed at $42.85, up $3.58 or +8.35%.

Strike Ends after Week-Long Price Surge

Oil prices slipped more than 1% on Friday after an oil worker strike in Norway ended, which should boost crude output. Oil futures climbed earlier in the week due to concerns the strike in Norway would cut crude output.

Norwegian oil firms struck a wage bargain with labor officials on Friday, ending a 10-day strike that had threatened to cut the country’s oil and gas output by close to 25% next week.

Output Halted by Hurricane Delta

Hurricane Delta dealt the greatest blow to U.S. offshore Gulf of Mexico energy production in 15 years, halting most of the region’s oil and nearly two-thirds of natural gas output.

US Drillers Add Oil and Gas Rigs for Fourth Week in a Row:  Baker Hughes

U.S. energy firms this week added oil and natural gas rigs for a fourth week in a row for the first time since June 2018 as producers start drilling again with prices holding around $40 a barrel over the past few months.

The oil and gas rig count, an early indicator of future output, rose three to 269 in the week to October 9, energy services firm Baker Hughes Co said in its closely followed report on Friday.

The total rig count fell to a record low of 244 rigs during the week ended August 14, according to Baker Hughes data going back to 1940.

This week’s rig count was 587 rigs, or 69%, below this time last year.

U.S. oil rigs rose four to 193 this week, their highest since early June, while gas rigs fell one to 73, according to Baker Hughes data.

Hedge Funds Cut Bullish Bets on US Crude as Demand Outlook Worsens

Hedge funds and money managers cut bullish wagers on U.S. crude, data showed on Friday, as rising coronavirus cases around the world weakened the demand outlook, and a rise in OPEC output last month also weighed on the market.

The speculator group cut its combined futures and options position in New York and London by 4,619 contracts to 297,896 in the week to October 6, the lowest in nearly a month, the U.S. Commodity Futures Trading Commission (CFTC) said.

Weekly Forecast

With the strike in Norway over, bullish crude oil traders are going to be watching the developments in the Gulf of Mexico for further direction. As of early Sunday, the U.S. Bureau of Safety and Environmental Enforcement (BSEE) and 91% of offshore crude oil production remains shut in the U.S.-regulated northern Gulf of Mexico following Hurricane Delta, which made landfall on Friday.

Through Sunday, a total of 8.8 million barrels per day (bpd) of crude oil production.

Traders have to remember that much of last week’s rally was fueled by short-covering ahead of the hurricane, so it’s hard to tell how much of the damage is already priced in. The point is, the market doesn’t have to rally if the news is bad regarding production. Time is what matters as in “how long will it take to get them up and running at full capacity again? That’s what traders want to know.

Looking ahead, demand is still bearish so gains could be limited. JP Morgan said that a worsening global oil demand outlook due to a potential rise in coronavirus cases this winter would likely prompt OPEC to reverse a planned easing of oil cuts in 2021, with Saudi Arabia offering deeper cuts below its current quota.

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