Oil, fundamental analysis

Bearish sentiment continues to dominate crude markets this week despite some otherwise bullish signals such as a huge crude inventory draw and the long-awaited US Federal Reserve rate cut. WTI was as low as $62.50/bbl on Monday with its high on Tuesday at $64.75/bbl.

Brent crude hit its low on Friday at $66.45/bbl with its high of $68.70/bbl occurring Tuesday. While Brent has settled lower than the prior week, WTI looks to settle near last week. The WTI/Brent spread has tightened to ($4.20).

Ukraine continues to attack Russian oil-related infrastructure, largely refiners, but also export infrastructure such as the Primorsk terminal. Meanwhile, the EU issued a new package of sanctions on Russia that includes a price cap of $47.60/bbl, a target on ‘shadow fleet’ vessels. While the former simply lowers the price at which China and India can continue to buy Urals, the latter would have a physical impact on curtailing exports themselves.

Normally, a Federal Reserve rate cut translates into an outlook for future economic growth which cannot happen without an increase in energy consumption, and those markets respond positively. However, thus far, that has not happened with NYMEX crude, natural gas, heating oil, or unleaded gasoline. Weak employment numbers apparently outweighed the positive impact of the Fed’s rate cut this week.

Recent data and analysts’ forecasts portend a crude surplus well into next year.

Additionally, OPEC+ delegates met this week to quantify the group’s production capabilities as they lay out their plans for 2027. Most market observers believe the group will continue to increase output should they determine that production can consistently grow from current levels. Meanwhile, the EIA in its latest Short-Term Energy Outlook (STEO), estimates that total global petroleum and other liquid fuels production will average 105.5 million b/d this year and 106.6 million b/d in 2026 while consumption will average 103.8 million b/d and 105.1 million b/d each year, respectively.

The Trump administration is pressuring NATO members Turkey, Hungary, and Slovakia to end imports of Russian crude. Turkey is the 3rd-largest buyer of Urals after China and India.

The Iraqi government has given preliminary approval for the 230,000 b/d of oil exports from Kurdistan to start flowing again. Final approval would allow the oil to flow after being shut-in since March 2023.

The Energy Information Administration’s (EIA) Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week unexpectedly decreased by 9.3 million bbl to a total of 415 million bbl and 5% below the 5-year average. The SPR was up 500,000 bbl to 405.7 million bbl.

Total US oil production was 13.4 million b/d vs. 13.2 million b/d last year at this time. 

Oil, technical analysis