Crude oil price outlook amid the ongoing supply/demand imbalance

Crude oil price has eased on its rebound while holding steady above the critical level of $100 per barrel. At the time of writing, Brent futures were at $107.49, down by 1.19%. At the same time, WTI futures dropped by 0.52% to $103.72.

Fundamentals

The psychological level of $100 per barrel remains a steady support zone amid tight supplies. Granted, it momentarily dropped below this level at the beginning of the week following concerns that coronavirus lockdowns in China would impact demand.

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Notably, crude oil price has rebounded by over 10% within a span of four sessions. This is despite a warning by OPEC that the ongoing Russia-Ukraine war and resultant sanctions will weigh on oil demand and growth of the global economy. The alliance now forecasts global oil consumption for the current year to be at 100.5 million bpd. The figure is 410,000 lesser than its prediction prior to Russia’s attack on Ukraine.

Similarly, the International Energy Agency (IEA) has cut its forecast for global oil consumption by 260,000 bpd in the current year. In particular, it predicts that China’s consumption in April will decline by 925,000 bpd.

While the predicted decline in global economic growth may trigger a reduction in oil demand, tight supplies remain a key bullish driver in the energy market. For as long as the Russia-Ukraine war continues and the imposed sanctions remain, supply disruptions will likely sustain high crude oil price.

To begin with, the weekly oil inventories data released by the EIA indicated a steady rise in fuel consumption. Gasoline inventories dropped by 3.649 million barrels for the week ending on 8^th March. The draw is the largest since October 2021 and beat the predicted decline of 388,000 barrels. In the previous week, the stockpiles had dropped by 2.041 million barrels.

At the same time, the amount of distillates in storage, which is usually refined into diesel and jet fuel, dropped by 2.902 million barrels. In comparison, analysts’ forecast was for a draw of 515,000 barrels after a build of 771,000 barrels in the prior week. Notably, the recorded decline in fuel products’ inventories has offset the surprise surge in crude oil stockpiles.

Furthermore, during a meeting with EU delegates, OPEC indicated that the current and future sanctions against Russia will likely yield a massive supply shock. Besides, the alliance noted that it would be impossible to replace the 7 million bpd of Russia’s oil.

Despite persistent calls from key consuming nations to increase production, the alliance has maintained modest output increases of 400,000 bpd in recent months. IEA member countries plan on making SPR releases amounting to 240 million barrels over a span of six months in an effort to ease the soaring crude oil price. Nonetheless, the move may not be enough to solve the supply shortages caused by dwindling stockpiles and underinvestment in the hydrocarbons sector.