Oil, fundamental analysis

Crude prices hovered in a tight $2.30/bbl range this week as indecision on direction led to consolidation. The market ebbed and flowed with bearish fundamentals pitted against bullish geopolitical events. Attacks, and threats of more sanctions, were pitted against output increases and an across-the-board crude and product inventory build in establishing price direction. Ultimately, the bulls won out.

WTI was as low as $61.70/bbl on Friday with its high on Wednesday at $64.10. Brent crude also hit its high on Friday at $68.15/bbl but its low was Monday at $65.50/bbl. Both grades settled higher than last week’s levels while the WTI/Brent spread has widened to ($4.55).

Prices fell Monday after the OPEC+ group’s Sunday decision to increase output by 137,000 b/d next month. However, given the smaller volume than the previous increases and, the fact that historically, the group has failed to meet the new quotas, the market actually closed higher than the previous Friday.

Tuesday’s Israeli attack on Hamas targets in the heart of Qatar sent prices rallying while Russia’s violation of Poland’s airspace only added more geopolitical drama to the week. The drones were shot down by NATO planes.

This week, the UK put sanctions on those who are shipping Russian crude to effectuate an actual curtailment of the flow of Urals to other countries. While Ukraine has attacked various oil ‘infrastructure’ sites in Russia, they have thus far not impacted supply or demand to a great extent. However, the recent drone attack on the Baltic Sea port of Primorsk, a key oil tanker loading facility, could hamper Russian exports.

The International Energy Agency (IEA) in Paris raised its forecast for the growth in global oil demand by 60,000 b/d to 740,000 b/d this year. However, the agency also increased its supply forecast for this year by 200,000 b/d to 2.7 million b/d and to 2.1 million b/d next year.

Always ‘talking its book,’ Saudi Arabia believes global demand will increase by 2.0 million b/d in second-half 2025. The Kingdom is also projected to increase its September exports by as much as 500,000 b/d since its own summer demand has lessened.

The consumer price index (CPI) for August came in at 2.9%, up from July’s 2.7%. It was within expectations as analysts expected it to show that businesses are passing on the increased costs of import tariffs. Core inflation, removing energy and food, rose 3.1% alone (grocery prices rose 0.6% from August). Filings for unemployment benefits rose last week to the highest level since October 2021.

Again, the numbers leave the Federal Reserve with a dilemma. Leave interest rates where they are with this sign of increasing inflation or look at the labor numbers and lower rates in the hopes of stimulating growth. Oil prices will gain support with the former choice whereas, economic concerns with the latter could send prices lower.

The Energy Information Administration’s (EIA) Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased while total US oil production was 13.5 million b/d vs. 13.3 last year at this time. The Strategic Petroleum Reserve was up 780,0000 bbl to 404 million bbl.

The inflation report and employment numbers were weighing on the three major US stock indexes Friday after the record highs posted Thursday. However, all three are higher week-on-week. The USD is lower on the week which supportive for crude.  

Oil, technical analysis