What's Affecting Oil Prices This Week (Sept. 11, 2017)?
In the week since our last edition of What’s Affecting Oil Prices, Brent prices averaged $53.64/bbl, a healthy gain from the previous week as U.S. exports and refining runs were hobbled by flooding in Texas. For the week ahead, Stratas Advisors expects Brent to average $53/bbl as the return of normal U.S. activity removes some recent support.
For the upcoming week, Stratas Advisors are expecting crude stocks to again report a build as the aftermath of Hurricane Harvey continues to work through the system. Crude stocks likely rose 4.8 million barrels. Stratas Advisors also expect the Brent-WTI differential to decrease slightly and average $5.00/bbl as WTI recovers on stronger runs and exports and Brent loses some steam.
The supporting rationale for the forecast is provided below.
Geopolitics, as it relates to oil, will continue to drive volatility with the few active hotspots that bear watching more likely to hamper oil supply, helping prices. While Venezuela continues its slow burn and Libya remains volatile, there are few active conflicts taking volumes offline currently. Ongoing tensions with North Korea could lend some support in the week ahead.
The dollar’s relationship with crude remains strong. The short-term outlook for the dollar is weak, potentially supporting crude. Hurricanes in the U.S., rising tensions with North Korea and dovish comments from fed speakers are all adding pressure.
Trader Sentiment: Positive
Trader sentiment will be a positive factor in the week ahead as Brent technicals indicate healthy price levels, out of overbought territory. Traders will remain sensitive to any negative fundamentals, but will be buoyed by reports of ongoing recovery at the refineries impacted by Hurricane Harvey. Positioning data was mixed in the latest release, with WTI managed money net longs increasing and ICE Brent managed money net longs falling slightly.
Last week the number of operating oil rigs in the U.S. fell by three, according to the weekly report from Baker Hughes. U.S. oil rigs now stand at 756 compared with 414 at the same time in 2016. Estimated U.S. production dropped sharply last week on outages due to Hurricane Harvey. Production activity rebounded fairly quickly after the hurricane passed through the Gulf, and this week’s numbers are likely to show a bounce-back that could temporarily pressure prices. Stronger export data as Texas area ports reopen will mitigate some of this pressure.
As expected, U.S. gasoline demand took a sharp turn down last week, but remains near the top of its five-year range on a four-week average basis. Hurricane Irma battering Florida and parts of the Georgia coast before moving inland is likely to pressure demand and prices in the week ahead. Distillate demand on a four-week average basis remains extremely healthy and is well above the five-year max. ARA product stocks remain healthy, with recent builds driven almost entirely by fuel oil as distillate and gasoline are flat to down.
The temporary loss of a significant portion of Gulf Coast refining capacity bolstered global margins substantially. While these margins will likely continue to fall in the week ahead, runs will increase on the Gulf Coast as the affected facilities are slowly brought back, a positive for domestic U.S. crude prices. European margins have already given back some of their gains from the Hurricane Harvey outages, but Hurricane Irma’s uncertain path of the last week provided a small leg of support.
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