WTI Up Over 6% in Sept, What’s Next?

WTI is up over 6% in September now, its 4th month of gains in a row, with higher prices pushing inflation up. As demand rises and oil producers look for more significant margins to fund projects, OPEC+ remains in the driver’s seat.

Rising, But How Much?

Oil prices have been rising for several reasons, but the big one is that the two major producers with the capacity to increase production have decided to curb supply. At the start of the month, Saudi Arabia and Russia's agreement was the latest move by OPEC+ to restrict in an environment where the IEA and OPEC both forecast demand to increase. The world is expected to reach a new peak of oil consumption of 101.8M bbl/day this year, leading to a potential deficit in oil markets, which puts countries that want to raise prices in the driver's seat.

Russia and Saudi Arabia apparently would like higher prices to fund their programs. With analysts forecasting crude reaching as much as $100 later this year, the lack of tools at the disposal of the US to address the issue comes into play. US gas prices have risen to the highest in over a decade when seasonally adjusted. Meanwhile, the US Strategic Petroleum Reserve (SPR) has been depleted by around half, with the Administration recommitting to filling it up, suggesting that the $70/bbl threshold to buy was still in place. The move higher in crude prices prompted the Department of Energy (DOE) to cancel the latest bid to buy oil for the reserve, but the government still needs to move to turn around and start releasing.

Stocks Are Low

Through August and September, US inventories of crude and its refined products saw record drawdowns as the driving season in the US was somewhat delayed. Even the latest data saw stockpiles deplete more than expected, but WTI witnessed a drop on Tuesday due to take-profit ahead of the FOMC and due to the Fed’s hawkish pause on Wednesday. As for new oil coming online, the trend in drilling in the world's largest producer has been to the downside, even as crude prices rise. Total drilling rigs in operation have been falling since the beginning of the year. Global oil inventories are expected to drop by another 3.3M bbls in the final quarter of this year, the biggest potential drawdown since 2007.

The depleted inventories - particularly the run-down SPR - suggest that authorities have less room for lowering prices. Recently, the US allowed a prisoner exchange with Iran, raising hopes that a deal could be reached allowing the Islamic Republic to sell crude. Still, objections from European partners shut that down. The expectation is that Riyadh and Moscow will keep curbing supply until the price reaches and is maintained at an agreeable level. But where that is still being determined. Some analysts forecast oil topping above $90/bbl, while others see $100/bbl. With current curbs based on political interests, it's hard to predict the future trajectory of oil over the coming months, especially as the Fed’s fight against inflation continues to weigh in.

WTI Flag Left Behind?

Crude oil may have left behind a rising flag at $77.60 a barrel, with prices above $84.90 expected to keep the short-term trend intact. Typically, the measured-move projection is calculated from the range breakout, completing the milestone at $92.20. Technically driven prospects remain somewhat pessimistic without demand past the peak or triple digits. Should there be a slide back below the breakout point, oil may be due to further declines under $77.70 a barrel, which could result in an additional lack of momentum. For now, it appears we are correcting the larger upward leg.

Source: SpreadEx / WTI

Key Takeaways

WTI has risen over 6% in September, primarily driven by supply cuts orchestrated by major producers Saudi Arabia and Russia within the OPEC+ group. Increasing global demand and geopolitical complexities have added to the uncertainty surrounding oil prices. Depleted reserves, declining drilling activity, and inflation concerns also significantly shape the oil market, with analysts predicting prices potentially reaching $100 per barrel.