According to the results of last week, WTI oil rose in price to the level of 71.6 dollars per barrel. Brent futures approached a seven - week high, and WTI - a six-week high. The key positive factors were strong demand forecasts from OPEC and the IEA, as well as the continuing collapse of production in the Gulf of Mexico, where two weeks ago Hurricane Ida led to the closure of production and refining.
After a new outbreak of coronavirus in the Asian region, the markets were closely watching the US Department of Energy, OPEC and the International Energy Agency. These agencies update their forecasts for the oil market every month, which act as a guide for many market participants. The focus was on demand forecasts, since new lockdowns could well slow down the economic recovery and have a negative impact on the indicator.
Nevertheless, there were no significant changes. The IEA lowered its demand forecast for 2021 by only 105,000 barrels per day, mainly due to the third quarter. OPEC kept the forecast unchanged, given the high rates of mobility in the OECD countries. At the same time, the estimates for 2022 were raised by both agencies, with the IEA only by 85,000 barrels per day, and OPEC – by almost a million barrels.
Against the background of positive forecasts, market tension has decreased. There are no reasons to expect a serious correction now. Optimism was observed not only in oil futures, but also in shares of oil companies. Additional support was provided by the longer-than-expected recovery of the oil and gas industry in the Gulf of Mexico. At the end of the week, about 28% of oil production in the region remained inaccessible. Due to the fall in production, oil reserves in the United States have been actively declining for two weeks in a row. On Wednesday, the Energy Information Administration reported a decrease of 6.4 million barrels against the expected 3.5 million barrels. This was another speculative factor that supported the oil rally.
Commodity markets, including oil, will closely monitor the events of the next week. Special attention will be focused on the US Federal Reserve meeting on Wednesday. Market participants have certain concerns about the reduction of purchases of bonds, which are now purchased for $ 120 billion per month. The curtailment of a soft monetary policy should lead to a strengthening of the dollar and a correction in commodity prices.
The latest IEA report showed that a deficit is expected in the oil market in September, which will support prices. Unexpected disruptions in oil production in August due to Hurricane Ida in the Gulf of Mexico caused a reduction in supply by 1.7 million barrels per day for the first time in the last five months. On the other hand, fears of the spread of a new strain of coronavirus and a slower recovery in oil consumption will keep prices from rising excessively. And also in October, the next planned increase in oil production by OPEC+ countries by 400,000 barrels per day should come into force. As a result, the market may come to a balanced state.
The forecast assumes a decline in the price of WTI oil to the support levels of 71.30, 71, 70.75, 70.50 and 70 dollars per barrel.