WTI remains under pressure as demand concerns outweigh Middle East risks

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WTI remains under pressure as demand concerns outweigh Middle East risks

IEA and OPEC forecasts weaken demand outlook

OPEC maintains a more optimistic view but also lowered its forecast for demand growth to around 580,000 bpd from 780,000 previously. At the same time, the physical market remains relatively tight: the IEA estimates a supply deficit of around 1.8 million bpd in Q3, while global observed inventories fell by another 69 million barrels in July.

An additional negative signal came from the U.S. According to EIA data for the week ended August 7, commercial crude oil inventories jumped by 17.4 million barrels to 424.4 million, while the market had expected a significantly weaker increase. The main reasons were a rise in imports by around 1.14 million bpd and a decline in exports by around 627,000 bpd.

Product stocks remain tight despite crude build

At the same time, gasoline inventories fell by 1.0 million barrels and remain around 6% below the five-year average, while distillate stocks declined by another 0.1 million and are around 12% below the seasonal average. Thus, the headline increase in inventories looks bearish for WTI, although the shortage of petroleum products and continued tightness in refining do not allow us to speak of the formation of a sustainable surplus in the U.S. domestic market.

Middle East risks continue to support oil prices

The key source of support remains in the Middle East. The EIA estimates that only around 4.9 million bpd of crude oil and liquid hydrocarbons passed through the Strait of Hormuz in Q2, compared with 21.6 million bpd before the conflict began, while the average volume of forced production outages in July was around 5.5 million bpd.

The agency assumes that supplies through the strait will remain severely restricted at least until the end of August and will begin to recover gradually only in September. An additional risk comes from threats to routes through Bab el-Mandeb, which Saudi Arabia used to bypass Hormuz.

WTI bulls fail to break $84-85 resistance

At this stage, the bulls’ inability to break through resistance around $84-85 per barrel triggered the liquidation of long positions, as a result of which WTI prices have fallen to around $81.53 at the moment. The decline may continue toward $80.50-80.00, where, as I noted in the article WTI slips below $84 as U.S. inventories offset Middle East supply risks, demand may emerge, but in the absence of a serious escalation in the Middle East, it is hardly worth expecting a large-scale rise in oil prices.

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