The bullish September spin looks poised to continue to nurture higher oil prices above $75 in the very near term, supported by the forecasted super-size gasoline draw by API, as well as general supply tightness that is likely to persist in the short term.
Oil prices are gaining today as the API inventory forecasts show draws above what the market expects, while the supply side of the equation looks tight in the US and at a global level.
It remains to be seen if OPEC will actually manage to raise output to the level it is planning, as delayed maintenance in some member states could hamper their increase, while other members are not allowed to pump more due to separate allowed quotas.
There is a risk that the optimism this week could be deflated by a possibly more subdued draw reported by the EIA today, both in crude and gasoline, as well as overall market jitters over whether the US Fed will take any drastic moves to cool a strengthening dollar.
According to Rystad Energy estimates, Hurricane Ida has removed 790,000 bpd of US Gulf of Mexico supply in September 2021 versus pre-storm levels, as many platforms are yet to restart production even 3 weeks after the storm made landfall.
Despite its supply hiccups, The US isn’t the only supply wild card of 2021. A revival of the Iran nuclear deal, if sanctions are removed by the fourth quarter of this year, could see Iranian crude oil production jump from the current 2.5 million bpd level to 3.5 million bpd by the end of 2022.
Upside potential could also hail from Russia, which has charted out an ambitious return for crude and lease condensate to average 11.24 million bpd in 2022, which would be a dramatic uptick from the 2021 average of 10.5 million bpd, as the country is still bringing back production shuttered by Covid-19.
As the flu season is ahead of us, there is another major risk for demand, in the possibility of new Covid-19 variants.
If the downside materializes and new variants knock on the door, new lockdowns could in theory shave off 2 million bpd in the fourth quarter of 2021, according to Rystad Energy’s scenario analysis.
For now, our base case forecast for oil demand levels is of 98.4 million bpd over the last three months of the year.
- by Senior Oil Markets Analyst Louise Dickson