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US Crude Prices Seen Under Pressure as Hormuz Flows Recover, Stocks Rise, EBW Market Says

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US crude prices are likely to remain under pressure over the coming weeks as improving flows through the Strait of Hormuz and rising US crude inventories offset geopolitical risks and signs of tightening refined-product supplies, EBW Analytics Group strategists said on Monday.

EBW analysts see the front-month October WTI contract initially testing higher before coming under renewed pressure, with a potential range of $80.50-$89.50 per barrel and a target price of $82.00 over the next 7 to 10 days.

The outlook turns more bearish further out, with November WTI seen eroding toward a $70.50-$85.50 range over 30-45 days, targeting $76.50. December crude is projected to trade between $63.50 and $73.50 over 90 days, with a target of $71.50.

WTI settled at $83.40 per barrel on Aug.28, down $3.66, or 4.2%, from the previous week.

"While crude may test higher early this week on the first US attacks in a month, the trend of rising crude supply and strong commercial inventories suggests further erosion ahead," EBW analysts said.

EBW analysts said that a key factor is the Strait of Hormuz, where flows are beginning to recover. The US Central Command said it had completed clearing naval mines, while Saudi and Iraqi exports were being lifted.

The analysts forecasted total flows, including pipeline workarounds, were approaching 16 million barrels per day, compared with over 20 million b/d before the disruption.

The recovery in exports is weakening the bullish case for crude, even as geopolitical tensions remain elevated. Iranian rocket launches and the threat of further US action have provided some support to oil prices, but the increase in physical supply is expected to weigh on the market.

Meanwhile, US crude inventories increased for a fifth consecutive week, adding to pressure on prices.

The Energy Information Administration reported commercial crude stocks at 428.9 million barrels for the week ended Aug. 21, up 0.1 million barrels. EBW forecast inventories to rise by 0.5 million to 1.5 million barrels in the week through Aug. 28.

The projected stock level would put inventories between 427.4 million and 430.4 million barrels, about 6.7 million to 9.7 million barrels above the year-earlier level. EBW expects end-of-September inventories of 415 million to 425 million barrels.

The US natural gas market has a firmer near-term outlook despite a weak longer-term picture.

October Henry Hub futures settled Friday at $2.888 per million British thermal units, up 7.7 cents, or 2.7%, from the previous week.

EBW expects October gas to test support and rebound over the next seven to 10 days, with a potential range of $2.81-$3.03/MMBtu and a target of $2.93. November is seen edging higher toward $3.07, while December could benefit from seasonal demand, reaching $3.38.

Natural gas storage increased by 15 billion cubic feet in the week ended Aug. 21, 30 billion cubic feet below the five-year average increase. EBW expects inventories to rise by about 28 Bcf in the latest week.

Storage stood at a deficit of 52 Bcf to last year's level but remained 158 Bcf above the five-year average. The consultancy firm projected end-of-September inventories of 3.46-3.49 Bcf.

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