Crude oil price outlook amid eased inventory concerns

Crude oil price is trading sideways for the second session in a row. Even with the eased price action, WTI and Brent futures are still above $80 as the demand outlook remains bullish.

Supply outlook

About one-and-a-half weeks ago, news on tight supplies at Cushing further validated the probability of crude oil price reaching $100 per barrel before the end of the year. Notably, the storage facility is the largest in the United States. As such, inventories data from the hub is crucial for the supply outlook on a broader perspective.

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Figures from Wood Mackenzie have indicated that stockpiles at Cushing surged by around 852,000 barrels between 26^th and 29^th October. About two weeks ago, inventories at the depot were at a level last seen in 2014 when crude oil price hit $100 per barrel.

For the facility to operate normally, there needs to be a minimum of 20 million barrels. While the amount of storage was still significantly above that level at 31 million barrels, it was getting depleted speedily. In two weeks, it has declined by over 4 million barrels.            As such, the recent rise in inventories has helped ease supply concerns. However, the stockpiles are still at the lowest level since late 2018.  

Demand outlook

Even with the eased concerns over inventories at Cushing, the situation in China and overall recovery in global demand is expected to boost crude oil price further. The commercial and strategic stockpiles in the Middle Kingdom have dropped to a three-year low.

The government’s decision to release its oil reserves have done little to deal with the issue. Indeed, this has added to the pressure triggered by the ongoing energy crisis.

With the supply constraints in the US and China in investors’ minds, the focus in the ensuing sessions will be on the OPEC+ meeting scheduled for Thursday. Analysts expect the alliance to maintain its output cuts despite calls from the US and other consumers to increase production.

In the meantime, investors will be keen on the weekly stockpiles data from API on Tuesday and EIA on Wednesday. Based on the current demand outlook, the Bank of America’s forecast of $120 per barrel by the end of June 2022 is valid.