Oil Price Fundamental Daily Forecast — Underpinned by Supply Disruption Worries

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading at three-week highs on Thursday as the focus continued to shift away from demand issues with traders now monitoring closely events pointing toward supply tightness.

These events include disruptions to Russian exports, the potential for major producers to cut output, and the partial shutdown of a U.S. refinery.

At 08:53 GMT, October WTI crude oil futures are trading $95.28, up $0.39 or +0.41% and December Brent crude oil is at $99.49, up $0.38 or + 0.38%. On Wednesday, the United States Oil Fund settled at $78.04, up $1.21 or +1.57%.

Drop in US Crude Stockpiles Underpins Prices; Gasoline Demand Worrisome

Falling U.S. crude and product stockpiles also added to the upward pressure on prices. Oil inventories fell by 3.3 million barrels in the week to August 19 at 421.7 million barrels, steeper than analysts’ expectations in a Reuters poll for a 933,000-barrel drop.

The bullish impact was countered by a drawdown in gasoline inventories that was less than expected. On Tuesday, the American Petroleum Institute (API) reported a gasoline inventory build. Both reports indicate tepid demand. U.S. gasoline stocks fell by 27,000 barrels in the week to 215.6 million barrels, compared with earlier expectations for a 1.5 million-barrel drop.

Talk of OPEC+ Output Cuts Creates Floor

Crude oil prices have been climbing since Monday when the Saudi energy minister flagged the possibility that OPEC and its allies will cut production to support prices. This serves as evidence of the group’s willingness to defend prices.

Although OPEC+ hasn’t announced the mechanics of the proposed cut in production, just the mere mention of it has put a floor under the market.

British Petroleum Shuts Down Some Refinery Units

Reuters is reporting that the world’s biggest oil consumer, BP announced the shutting of some units at its Whiting refinery in Indiana after an electrical fire on Wednesday. Traders are still monitoring the situation but if the issue escalates, it could have a material impact on supply since the 430,000 barrel-per-day plant is a key supplier of fuels to the central United States and the city of Chicago.

Iran Nuclear Deal Worries Capping Gains

There is enough bullish news this week to send prices even higher, but right now traders have to settle for it being strong enough to provide support. Worries about a nuclear deal between Iran and Western powerhouses could also be limiting gains.

Although talks between the European Union, the United States, and Iran are continuing, the market appears to be trading as if the delay in reaching the agreement is nearly a done deal.

If signed, Iran will bring upwards of about 1 million barrels per day of crude to the market. Prices could be pressured over the short-run, but over the long-term, it won’t be enough to offset the loss of Russian output.

Furthermore, if prices fall too far, too fast, OPEC+ is more likely to trim its output.

Short-Term Outlook

Traders seem to be shrugging off global recession talk this week with the focus primarily on supply issues. But the upside momentum seems to be stalling. The charts indicate there is plenty of room for the upside before the market reaches strong resistance, but it may take heightened supply disruption news to spike prices higher.

Continue to monitor the possible OPEC+ cuts and the BP outage. They may be small issues now but could develop into major bullish issues over the near term.