After Wednesday’s rally, the big question today was if oil prices are able to keep their gains and remain at such high levels.
EIA’s confirmation of a surprisingly large draw of crude inventories in the US helped maintain price gains but now – like being on top of a ladder – there can turbulence with every move, and it will be difficult for prices to hold this altitude for long – especially as US production recovers in coming days and weeks.
Ida-affected oil production capacity continues to recover in the US, and this is expected to reflect on prices in coming days, but for now the slow pace of that recovery coupled with the stronger crude inventory stock draw seem to be supporting prices.
Yesterday, EIA reported a big commercial crude oil stock draw of 6.42 million barrels, significantly higher than last week’s crude draw of 1.53 million barrels.
The considerably high stock draw in the US is the result of the supply disruption caused by Hurricane Ida in the last three weeks. We might see some spillover effects in the coming week too as the recovery of the US GoM supply continues to be slow.
The tropical storm, Nicholas, which was briefly upgraded to Hurricane status did not cause any major impact on either upstream or downstream facilities and thus the bullish run was slightly capped in early trade hours today.
On demand side, both IEA and OPEC revised up their forecast for 2022, with OPEC expecting demand to reach 100.8 million bpd in 2022 while IEA estimates it to be around 99.8 million bpd.
Rystad Energy in its base case estimates the 2022 global oil demand to average 100.03 million bpd, up 4.24 million bpd from 2021, while in a slow vaccination scenario, we expect oil demand to only reach 99.07 million bpd.
Outlook for stronger oil demand in 2022 is always offering support to bullish traders and helps add barrel dollars but the market knows better that Covid-19 still holds some uncertainty for forecasts ahead.
As Nicholas spared US production from further disruptions, it is difficult to see how oil prices can increase further in the near term, and the market is now likely on top of the curve before returning output drives prices lower – unless of course global supply suffers another surprise.
