Oil Price Fundamental Daily Forecast – OPEC has Little Spare Capacity to Make-up Drop in Iranian Production

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Thursday as both professional and speculative buyers continue to be driven by expectations of a shortfall in global supply once U.S. sanctions against major crude export Iran come into play in only a little more than a month.

At 1155 GMT, November WTI Crude Oil is trading $72.28, up $0.71 or +0.99% and December Brent Crude Oil is at $81.38, up $0.59 or +0.73%.

The uncertainty over the amount of Iranian crude oil that will be taken from the market once the U.S. sanctions begin in full force on November 4 continues to drive the price action. Estimates range from 500,000 barrels per day (bpd) to 2 million bpd.

Saudi Arabia and other allies are expected to add about 1.4 million bpd of additional supply to the market over the next couple of months in order to make up the drop in Iranian production but there are still worries it might need to limit output next year to balance global supply and demand as the U.S. pumps more crude.

According to the latest data, OPEC has little spare capacity to make up for any drop in exports from Iran, which is the group’s third-largest producer.

In other news, as reported on Wednesday, U.S. crude production hit a record 11.1 million bpd in the week-ending September 21, according to data from the Energy Information Administration (EIA) on Wednesday. This is up close to a third since mid-2016.

Additionally, commercial crude stocks rose by 1.85 million barrels, to 395.99 million barrels, the EIA data showed.

Forecast

Both Brent and WTI crude oil are expected to remain firm throughout the session as the current fundamentals continue to support higher prices. Speculative buyers are also coming into the market and showing a willingness to buy strength on the back of a bullish technical breakout to the upside on the long-term charts.

Volatility is expected to remain at heightened levels over the near-term so there is the possibility of a two-sided trade although the bias will remain to the upside. This price action will likely be fueled by the hedge funds and money managers who hold long positions, but reserve the right to take profits periodically as the market climbs higher.

Also driving the price action is speculative buying, fueled by new forecast of $90 to $100 Brent crude oil futures. We may not see this, however, because as prices rise, demand may start to fall. Since OPEC+ can’t seem to get a grasp on rising prices, a drop in demand will essentially dictate the height of the rally at current price levels.