Oil Price Fundamental Weekly Forecast – Production Cut Agreement Should Be Supportive
U.S. West Texas Intermediate and international benchmark Brent crude oil futures finished higher last week, helped by the news that OPEC along with other major exporters including Russia reached an agreement to reduce production in an effort to curtail supply and stabilize prices. Technically, the markets settled higher for a second week, indicating their may have been a little speculative buying mixed in with short-covering.
According to the report, the OPEC-led group agreed to rollback output by 1.2 million bpd during the first six months of 2019. The production cuts fell right in line with forecasts heading into the meeting. Traders were looking for the cuts to fall between 1.0 million and 1.4 million barrels per day.
A breakdown of the agreement shows OPEC members agreed to trim production by 800,000 bpd, while non-OPEC producers agreed to shave 400,000 bpd off the market.
A further breakdown shows Saudi Arabia will reduce its production down to about 10.7 million bpd in December and to 10.2 million bpd in January. Russia is going to be responsible for cutting about 228,000 to 230,000 bpd.
In other news, the Energy Information Administration (EIA) reported that domestic crude supplies fell by 7.3 million barrels for the week-ended November 30. This was the first reported draw in 11 weeks. Analysts had forecast a decline of 2.39 million barrels.
The EIA also said gasoline stockpiles rose by 1.7 million barrels the week-ended November 30, while distillate stockpiles climbed by 3.8 million barrels. Traders were looking for a supply increase of 357.000 barrels in gasoline and a 1.25 million barrel build in distillate inventories.
Forecast
The technical chart pattern indicates that buying is increasing. A key fundamental obstacle is out of the way so I expect to see more short-covering and speculative buying this week. Additionally, the markets could get a boost from a weaker U.S. Dollar, which could drive up foreign demand for U.S. crude.
Gains could be capped by concerns over a slowing global economy, worries over a potential escalation in the U.S.-China trade dispute and stock market weakness and volatility.
This article was originally posted on FX Empire
