Crude oil trading reminder: The tropical storm "Nicholas" strikes and raises supply concerns. OPEC demand is optimistic, oil prices still have to rise?

During the Asian session on Tuesday (September 14), US crude oil hovered around 70.61. Oil prices rose to a six-week high of 70.97 on Monday, and closed above US$70 per barrel for the first time in nearly six weeks. Hurricane Ida hit the Gulf Coast for two weeks. Later, the recovery of US oil production was slow, and there was concern that another storm this week might affect Texas oil production.


In the day, the focus will be on the unseasonally adjusted US CPI annual rate in August, the IEA’s monthly crude oil market report, and the announcement of changes in US API crude oil inventories for the week ending September 10 at 4:30 on Wednesday.

Bullish factors affecting oil prices

[U.S. stock market ends five consecutive declines, energy stocks lead gains]

The U.S. S&P 500 index closed higher on Monday, ending a five-day decline. Investors are concerned about the possible increase in corporate tax rates and upcoming economic data. Energy stocks led the gains, as crude oil prices rose to a six-week high. OPEC expects rising global fuel consumption and production interruptions in other regions to drive demand for crude oil.

Liz Young, head of investment strategy at SoFi, said, “There may not be too many surprises this month. We are experiencing another period of volatility. I think that as the 10-year U.S. Treasury yields slowly rise before the end of the year, funds may turn around. Move back to cyclical stocks and stocks that have benefited from the economic restart."

The focus of market participants is that the US President Biden's $3.5 trillion spending bill may be passed, and it is expected that the bill will include an increase in the corporate tax rate from 21% to 26.5%.

Goldman Sachs analysts expect that the corporate tax rate will be raised to 25%, and the final rate of increase in the overseas profit tax rate will be half of the proposed rate. They estimate that this will lead to a 5% decline in the profits of S&P 500 index companies in 2022.

The US Department of Labor will release the Consumer Price Index on Tuesday. The data may further reveal the current inflation wave and whether inflation is temporary, as the Fed insists.

Young added, "I don't think the inflation rate will fall below 2% before the epidemic. Even if some of these temporary factors weaken, we will still maintain a higher inflation rate than before."

Other key indicators to be announced this week include retail sales and consumer confidence, which may indicate the extent to which the demand boom driven by the economic restart has been suppressed by the highly contagious new crown Delta variant.

[OPEC expects global demand for its crude oil to increase this year and next]

OPEC predicts that demand for crude oil is expected to increase due to increased global fuel consumption and production interruptions in other regions. OPEC’s latest data shows that although member states restore idle production capacity, the world will continue to face oil supply shortages in the coming months. Despite the threat of delta variants, fuel consumption is picking up, while crude oil production in the North Sea, the United States, Mexico and other places is lower than expected.

According to OPEC’s monthly report released on Monday, “The global economic recovery and the substantial increase in personnel travel significantly boosted the growth of crude oil demand in the first half of the year. As the end of 2021 approaches, this momentum is expected to slow down, but the overall trend remains positive. ".

Compared with last month's forecast, OPEC has raised its forecast of global demand for its oil by 260,000 barrels per day this year, mainly due to the interruption of oil supply. According to the report, Hurricane Ida and a fire on an offshore platform in Mexico have restricted North American production. Beihai's production was lower than expected this quarter.

OPEC revised up its forecast for crude oil demand in 2022 by 1.12 million barrels per day. Next year, the global consumption meter will increase by 4.2 million barrels/day to 100.8 million barrels/day, an increase of 980,000 barrels/day from the previous month’s estimate and exceeding the level before the outbreak.

OPEC's daily production increased by 151,000 barrels to 26.76 million barrels last month, which is still significantly lower than the average global demand for OPEC crude oil expected in the third quarter.

However, the organization's data shows that it is not only non-OPEC countries that have encountered production problems. Despite the approval to increase production in August, there are still a few African member states that have seen almost no increase in output. For example, Nigeria’s daily output fell by 114,000 barrels.

[Storm Nicholas may escalate into a hurricane before it makes landfall]

Royal Dutch Shell began to evacuate workers on an oil platform in the U.S. Gulf of Mexico on Monday, and other companies also began to prepare for hurricane-level winds brought by the second Gulf of Mexico storm in a few weeks.



According to the National Hurricane Center, tropical storm "Nicholas" was moving northward at a speed of 60 miles per hour in the waters off the southern coast of Texas on Monday. It may evolve into a hurricane before making landfall.

It is predicted that the total rainfall in the coastal areas of Texas will reach 16 inches, and some remote areas may reach 20 inches.

"Nicholas" is the second hurricane this month to threaten energy facilities on the U.S. Gulf Coast. In late August and early September, Hurricane Ada caused severe damage to oil production and refining facilities.

According to the Bureau of Safety and Environmental Enforcement, two weeks after Hurricane Ida crossed the border, more than 40% of the oil production capacity in the U.S. Gulf of Mexico was still suspended on Monday. Shell began to evacuate non-essential personnel from its Perdido platform on Monday, which was not affected by Hurricane Ida. The company is continuing to assess the loss of its Delta-143 facility, which is a major transfer station for three large oil fields, which are still in a state of suspension.

Freighters at the oil export ports on the coast of Texas received warnings of strong hurricane-level winds. The U.S. Coast Guard stated that Corpus Christi Port may be hit by hurricane-level winds tomorrow.

The refinery also began to prepare for the storm. Phillips 66 launched their hurricane plans at the refinery in Sweeney, Texas, and the Lake Charles refinery in Louisiana; ExxonMobil responded to it at the Baytown and Beaumont petrochemical plants in Texas Preparation for severe weather.

Oil import and export faced delays caused by "Nicholas". Shippers said that ships that were unable to load and unload cargo during Hurricane Ida may be diverted again. According to Refinitiv Eikon Ship Tracking, the first supertanker planned to load at the Louisiana Offshore Oil Port (LOOP) has not yet been loaded. The port is the largest privately owned crude oil import and export terminal in the United States.

[U.S. consumer inflation is expected to rise to a record 4%]

According to the latest data released on Monday, in the New York Fed survey, US consumers’ mid-term inflation expectations rose to record highs.

Consumers said that they expect inflation to be 4% in the next three years, an increase of 0.3% from the previous month.

Consumers’ median estimate of the inflation rate for the next year also rose by 0.3 percentage points to 5.2% in August, which is the 10th consecutive month of growth, setting a new high since statistics were available in 2013. A survey by the Federal Reserve Bank of New York shows that Americans expect prices such as rent and food to rise at a higher rate. These commodities account for a large proportion of the consumer price basket and are difficult to replace.

According to data from the Federal Reserve Bank of New York, American consumers expect the inflation rate to reach 4% in the next three years. Economists surveyed by Bloomberg expect the inflation rate to fall slightly. The latest survey released on September 10 shows that prices will rise by an average of 4.3% this year and 3% in 2022.

At the same time, expectations that wages will keep up with rising prices are beginning to cool. An economist’s median forecast of economic growth in the coming year is 2.5%, and respondents over 40 have contributed to this decline to a large extent. However, the overall expectation of household income still rose by 0.1 percentage point to 3%, setting a new high.

Negative factors affecting oil prices

[Global demand for refined oil products is expected to reach its peak in 2032]

With the acceleration of the energy transition process, global demand for fossil fuels such as gasoline and diesel may peak as early as 2032, but it may take decades to significantly reduce oil consumption.

According to IHS Markit Ltd, demand for refined oil will not fall below 2019 levels until 2043. This forecast does not take into account the consumption of natural gas liquid, which is mainly used for plastic production.

More and more energy forecasting agencies predict that fossil fuel demand will reach its peak in the next decade. Bloomberg New Energy Finance predicted in July that oil consumption will peak by 2033 and will fall below the level before the new crown epidemic by 2041.

IHS said that by 2050, in addition to the 2.3 million barrels of capacity that has been permanently closed during the new crown epidemic, global refining capacity is expected to decrease by more than 3 million barrels per day.

[EIA expects U.S. shale oil production to increase to 8.1 million barrels per day in October]

The Monthly Drilling Productivity Report released by the Energy Information Administration (EIA) on Monday showed that U.S. shale oil production in October is expected to increase by approximately 66,000 barrels per day to 8.1 million barrels per day, the highest since April 2020.

The Permian Basin, which produces the largest shale oil, has the largest increase. Data shows that crude oil production in this area is expected to increase by 53,000 barrels per day in October to 4.8 million barrels per day, the highest since March last year. Production in most other shale oil producing areas is expected to remain stable or increase slightly.

As oil prices rebounded to $70 per barrel, drilling activities by energy companies continued to increase. Overall, as of August, the number of active oil and gas drilling rigs has increased for 13 consecutive months. Despite this, oil companies are still cautious about investing in new oil wells because most companies continue to focus on improving cash flow, reducing debt and increasing shareholder returns, rather than increasing production.

[Saudi Aramco will supply crude oil in full according to the contract quantity in October]

A person familiar with the matter said on Monday that Saudi Aramco has notified at least five North Asian buyers that it will supply crude oil in full in accordance with the contracted volume in October. The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia have agreed to increase the monthly supply of 400,000 barrels per day from August to December.

Taking into account the increase in supply, Saudi Aramco also lowered the prices of all grades of crude oil sold to Asia in October by at least $1 per barrel to attract buyers. One of the sources said, "OPEC's production cut is still about 5 million barrels per day, but Saudi Arabia seems to have sufficient oil."

The source said that despite the sharp price cuts, none of the five buyers requested an increase in supply. One buyer said that spot crude oil prices are still attractive; another said that they have bought enough crude oil from the spot market to meet refining needs



On the whole, the interruption of crude oil production caused by Hurricane Ada has not recovered, and crude oil production will usher in the impact of potential Hurricane Nicholas, which has triggered concerns about insufficient supply; in addition, OPEC is optimistic about demand this year and next. , To provide further strong impetus for oil prices, and oil prices tend to be bullish in the short-term. The IEA released its monthly crude oil market report within the day. If the report is positive for oil prices, under the influence of multiple favorable factors, oil prices may continue to rise in the short-term.

GMT+8 8:12, US crude oil is now quoted at $70.56/barrel.