Oil Price Fundamental Weekly Forecast – Underpinned by Looming Sanctions, Pressured by Worries Over Weakening Global Demand

James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished lower for the third straight week. The selling was fueled by a combination of excessive stock market volatility and another rise in U.S. crude oil inventories.

Traders continued to express concerns over a potential supply shortage due to the impending sanctions against Iran, which are scheduled to start on November 4. However, this potentially bullish news was being offset by reports that Saudi Arabia and Russia stand ready to offset any production losses with output increases of their own.

Last week, December WTI crude oil futures settled at $67.59, down $1.69 or -2.44% and January Brent crude oil finished the week at $77.66, down $1.60 or -2.06%.

Crude oil finished higher four out of five sessions last week, but the higher closes were not enough to offset a steep loss on Wednesday that was fueled by a plunge in U.S. equity markets and the fifth straight increase in U.S. supply.

U.S. Energy Information Administration Report

According to the U.S. Energy Information Administration (EIA), U.S. crude inventories rose by 6.3 million barrels the week-ending October 19, more than the 3.7 million-barrel increase expected. However, gasoline stocks fell 4.8 million barrels the week-ending October 19 to 229.33 million, the lowest since December 2017, and distillates, which include diesel, were down 2.3 million barrels, both more than forecast.

Iran Sanctions

While the sanctions are expected to tighten supplies, other producers, notably top exporter Saudi Arabia, are willing to increase supply further if needed.

Saudi Energy Minister Khalid al-Falih said last week that Saudi Arabia would step up to “meet any demand that materializes to ensure customers are satisfied”.

In other news, the U.S. oil rig count, an indicator of future production, rose by 2 rigs in the latest week to 875, its highest since March 2015, after stalling this summer due to pipeline constraints in largest U.S. oil patch.

Forecast

Some technical indicators are pointing toward an oversold market. This may trigger a short-covering rally, but geopolitical risk factors raising concerns over global instability and other external uncertainties risking demand for oil could limit gains this week

We could be looking at a rangebound trade this week with traders focused on the return to looming U.S. sanctions on oil exporter Iran, balancing that against growing worries about weakening worldwide demand.

Stock market volatility will also influence the price action. Prices are likely to fall further if stocks continue to sell-off and U.S. inventories continue to rise. However, the market is also in a position to rally due to technically oversold continues and a possible recovery in the U.S. equity markets.

Furthermore, late last week, the Saudi’s expressed concerns about a potential oversupplied market. We’ll be watching this week to see if they decide to cut back on their promise to increase production in November.

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