During the week of October 5th, the price of Brent Crude Oil was bid ahead of key US data, including the American Petroleum Institute’s (API) API Petroleum Consumption Index (PCE) and the OPEC+’s Oil Market Report. These two key events, in combination with the upcoming meeting of EU energy ministers, have fueled speculation that prices may continue to move higher.
WTI
Despite the recent turmoil surrounding the Middle East and oil production, the Brent crude oil forecast is largely bullish. The Organization of Petroleum Exporting Countries is expected to cut production by a quarter million barrels per day (bpd) by the end of the year. This will put the global balances in a modest surplus.
As the global demand for oil continues to grow, the Brent crude oil price is expected to surge to $132 a barrel by 2040. The OECD based its forecast on skyrocketing demand from China and other emerging markets. The EIA’s report is also out today.
The United States is the largest oil consumer in the world. However, the nation’s economy has struggled in the first two quarters of the year.
API
Despite the OPEC+ announcement Wednesday that they are cutting production by 2 million bpd, Brent crude is trading higher today. Ahead of key US data, the market is cautious.
Last week’s inventory change showed an increase of 3.6 million barrels, while gasoline inventories fell by 3.5 million barrels. This is a weaker trend than expected, indicating demand is not rebounding as fast as planned. However, there are concerns about how European Union sanctions could affect imports of Russian oil.
The US Energy Information Administration will release data on crude oil inventories later this month. This could help fuel further appreciation in the Brent price.
Today’s headlines are dominated by US-centric data, including a report on crude oil inventories from the US Energy Information Administration (EIA). While API data could indicate a supply crunch in the U.S., the data will also provide a clue about the rate at which the Federal Reserve will raise rates.
OPEC+
OPEC+, a group of the world’s top oil producers, decided to cut output by a staggering 2 million barrels per day beginning in November. The OPEC+ is a group that includes Saudi Arabia and Russia.
It’s unclear how much of a role the cut will play. But analysts are pointing to the OPEC+’s decision as a bullish sign for oil prices.
After months of undershooting production targets, the OPEC+ decided to cut output. It also cut demand forecasts for the next year, predicting that demand would lag supply by 400,000 barrels per day.
OPEC+’s decision was criticized by the Biden administration. The United States argued that the move would lead to a global recession and stimulate inflationary pressures. It also suggested that a production cut would raise pump prices for U.S. drivers.
Inventory changes in the US Strategic Petroleum Reserve (SPR)
Several inventory changes in the US Strategic Petroleum Reserve (SPR) occurred this week. The latest week saw a drop of 8.1 million barrels.
The SPR has been filling at a slower rate than anticipated under tight market conditions. As a result, the inventory is now at its lowest level since 1985. This is the result of a 180 million barrel drawdown authorized by President Obama in the spring.
The SPR remains one of the most important strategic oil reserves in the world. It was created in December 1975. It is maintained by the US Department of Energy (DOE) and is used to reduce the risks of disruptions in oil supply.
The SPR is also used to help producers deal with uncertainty about demand for their products in the future. It helps to keep the price of oil low by adding large amounts to the market.
EU energy ministers to meet on Thursday
Several countries are opposing the proposed gas price cap, while others are supportive. But the EU is still debating new measures to address the energy crisis. The EU executive branch has pledged to put forward a series of unprecedented measures to address the crisis.
A proposed gas price cap would impose a price ceiling on imported Russian gas. This would enable the EU to adopt emergency measures if the price rises beyond the cap. However, it has been pointed out that the gas price cap could also cause further anger and disruption to the Russian gas supply.
The EU Commission has been preparing proposals, which will be tabled next week. These proposals will include a number of measures aimed at reducing energy demand, limiting intraday price volatility, and collecting surplus revenues from electricity production. There will also be financial support for struggling consumers.