Following three consecutive weekly gains, oil bulls do not seem tired yet as crude oil extended gains for the fifth straight session today. The world’s demand is not being met with enough supplies and this has pushed Brent towards $80. Inventories across all continents are dropping as we head into the winter season, with US stockpiles sitting near a three-year low. Exacerbating the global energy crunch is the shortages in natural gas supplies, which is leading to higher oil demand as some consumers switch fuels.
Going green or shifting towards renewable energy resources has a big price to be paid, particularly in Europe where wind stopped blowing in the summer season and electricity prices have surged to record highs.
Stronger energy demand from the reopening of economies was also met with supply losses from the US due to Hurricane Ida. Gulf of Mexico losses have exceeded 30 million barrels so far, and more are expected due to the extensive infrastructure damage to some producers.
The Brent crude term structure remains well in backwardation with November 2021 contracts sitting 90 cents above December ones and the gap widens to about $5.70 compared to July 2022 contracts. This shows traders remain bullish on prices and investment banks are now updating their year-end targets for oil. Goldman Sachs raised its forecast for Brent from $80 to $90 and more investment banks are likely to follow with upgrades.
Whether we’ll see prices moving closer to $90 or revert back towards $70 depends a lot on OPEC+’s next move. The upcoming October 4 meeting will be watched very closely by traders, and oil consuming countries hope to see more easing in supplies. We know with a high degree of certainty that the group will confirm a 400,000 barrel per day supply increase for November, but are we going to see any additional increases in production? That will determine whether bulls remain in control or take a short-term break.