Oil Price Fundamental Weekly Forecast – Strike Over, Platforms Survive – Demand Destruction Moves to Forefront
US West Texas Intermediate and international benchmark Brent crude oil futures finished significantly higher last week, with the rally being driven by concerns about a supply disruption. The catalysts that drove prices up were a strike in Norway and production shutdowns related to the Hurricane Delta.
However, don't expect the same factors that lead to higher prices this week. First, the strike in Norway is over. Second, the hurricane has passed the platforms and progress has already been made to get them back online, and third, the coronavirus pandemic is showing no signs of easing, which should keep the pressure on demand.
Last week in December, US WTI Crude Oil futures traded at $ 40.91, up $ 3.57, or + 9.56%, and December Brent crude closed at $ 42.85, an increase of $ 3.58 or + 8.35%.
Strike ends after a week's price hike
Oil prices fell more than 1% on Friday following the end of an oil workers' strike in Norway, which should boost crude oil production. Oil futures rose earlier in the week on concerns that the strike in Norway would slow crude oil production.
Norwegian oil companies signed a collective agreement with labor officials on Friday, ending a ten-day strike that threatened to cut the country's oil and gas production by nearly 25% next week.
Issue stopped by Hurricane Delta
Hurricane Delta dealt the largest blow to US offshore power generation in the Gulf of Mexico in 15 years, halting most of the region's oil and nearly two-thirds of natural gas production.
US drills add oil and gas rigs for fourth consecutive year: Baker Hughes
U.S. energy companies added oil and gas rigs this week for the fourth consecutive year for the first time since June 2018 as producers resume drilling in recent months at prices around $ 40 a barrel.
The number of oil and gas rigs, a leading indicator of future production, rose by three to 269 in the week ended October 9, energy services company Baker Hughes Co said in its closely followed report on Friday.
The total number of rigs fell to a record low of 244 rigs in the week ended August 14, according to Baker Hughes data from 1940.
The number of rigs this week was 587 rigs, or 69% below that time last year.
US oil rigs rose four this week to 193, their highest level since early June, while gas rigs fell one to 73, according to Baker Hughes.
Hedge funds cut bullish bets on US crude oil as demand forecast deteriorates
Hedge funds and money managers have cut stakes on U.S. crude oil, data showed on Friday as rising coronavirus cases globally weakened demand prospects and an increase in OPEC production last month also weighed on the market.
The speculator group reduced its combined futures and options position in New York and London by 4,619 contracts to 297,896 in the week ended October 6, the lowest level in nearly a month, the U.S. Commodity Futures Trading Commission (CFTC) said.
After the strike in Norway, bullish crude oil traders will be watching developments in the Gulf of Mexico for further guidance. As of early Sunday, the U.S. Bureau of Safety and Environmental Protection (BSEE) and 91% of offshore crude oil production in the U.S. regulated northern Gulf of Mexico will continue to be closed following the Hurricane Delta that landed on Friday.
A total of 8.8 million barrels of crude oil per day (bpd) will be produced by Sunday.
Traders need to remember that much of last week's rally was fueled by pre-hurricane short covering. Hence, it's hard to say how much of the damage is already priced in. The point is that the market does not have to rebound if the news is bad in terms of production. It all depends on the time, how long does it take before you are fully utilized again? Dealers want to know that.
Looking ahead, demand is still bearish so profits could be limited. JP Morgan said a deterioration in the global outlook for oil demand due to a possible spike in coronavirus cases this winter would likely prompt OPEC to reverse a planned easing of oil cuts in 2021, with Saudi Arabia taking deeper cuts its current quota.
In our economic calendar you will find all economic events of today.
This article was originally published on FX Empire
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