Oil Price Fundamental Daily Forecast – Higher as Tight Supply Concerns Offset Demand Destruction Worries

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Thursday, underpinned by concerns over tightening supply that offset the destructive impact of uncertain demand, and the news that the United States will release more crude from is Strategic Petroleum Reserve (SPR).

At 08:47 GMT, December WTI crude oil futures are trading $85.42, up $0.90 or +1.06% and December Brent crude oil is at $93.11, up $0.70 or +0.76%. On Wednesday, the United States Oil Fund ETF (USO) settled at $70.06, up $1.36 or +1.98%.

Some traders are saying that oil prices are being supported by a jump in investor sentiment amid news that China is considering a cut in the duration of quarantine for inbound visitors. You have to be careful trading this event with the devil being in the details.

The COVID restrictions could be eased for inbound travelers, not the domestic population. If it were for the latter then I would have to call it a potentially bullish development since the current COVID restrictions are weighing on prices. We’ll continue to monitor this situation, but we’re not going to suggest using this story as the primary reason for getting long crude oil.

For bullish traders, the focus should be on tightening supply. The factors influencing this narrative are the OPEC+ production cuts, the EU embargo on Russian energy products and falling U.S. stockpiles. All of these factors appear to be weighing on worries over recession-driven demand destruction and the release of SPR crude.

US Crude Stockpiles Decline According to Government Data

U.S. crude oil inventories dropped the week-ending October 14, while stockpiles of gasoline and distillates were little changed, the U.S. Energy Information Administration said on Wednesday.

Crude inventories fell by 1.7 million barrels in the week to October 14 to 437.4 million barrels, compared with analysts’ expectations in a Reuters poll for a 1.4 million-barrel rise.

U.S. gasoline stocks fell by 114,000 in the week to 209.4 million barrels, the EIA said, compared with analysts’ expectations in a Reuters poll for a 1.1 million-barrel drop.

Distillate stockpiles, which include diesel and heating oil, rose by 124,000 barrels in the week to 106.2 million barrels, versus expectations for a 2.2 million-barrel drop, the EIA data showed.

Short-Term Outlook

After failing in a number of attempts to drive WTI and Brent through major support levels, the narrative has now shifted to the bullish side. I’m basing this assessment on the OPEC+ production cuts and the EU’s plan to keep Russia shut out of the market.

I think prices would be a lot higher if not for the periodic releases of U.S. strategic petroleum reserve oil. But that government selling program is rapidly coming to an end.

The way I see it, the SPR release announcement made earlier in the week is likely to keep a lid on prices over the short-run. But once its impact is over then sentiment will turn bullish because of supply restrictions from OPEC+ and the EU embargo on Russian crude.