Oil Price Fundamental Weekly Forecast – Stabilizing Due to Possible Production Cuts
U.S. West Texas Intermediate and international-benchmark crude oil futures finished lower last week, but the markets did start to show signs of stabilizing after a steep plunge on Tuesday. Furthermore, the price action suggests there was a divergence from the bearish American Petroleum Institute (API) and U.S. Energy Information Administration (EIA) weekly inventories reports.
For the week, January WTI crude oil settled at $56.68, down $3.68 or -6.10% and January Brent crude oil finished at $66.76, down $3.42 or -5.12%.
The API reported late Wednesday that U.S. crude supplies rose by 8.8 million barrels for the week-ended November 9. Traders were looking for a rise of 2.3 million barrels.
On Thursday, the EIA reported that domestic crude supplies rose for an eighth straight week. They climbed by 10.3 million barrels for the week-ended November 9. Analysts were looking for a build of 2.3 million barrels.
One would have expected to see prices plunge following the API and EIA news, but they didn’t. Nonetheless, prices remain under pressure on concerns that the global market is oversupplied.
Oversupply Concerns
U.S. production reached another record last week, at 11.7 million bpd, U.S. data showed. Additionally, Saudi Arabia, Russia and other smaller producers have more than compensated for the lost Iranian oil due to the sanctions and most analysts now see a significant supply surplus with inventories building.
Possible Production Cuts
Last week, traders started to react to rumors OPEC is widely expected to start trimming output soon, fearing a price crash similar to the plunge in 2014. OPEC’s de facto leader, Saudi Arabia, wants the cartel to cut output by about 1.4 million bpd, around 1.5 percent of global supply, sources told Reuters last week. Additionally, from December forward, Iran is expected to export about 1 million barrels per day. Furthermore, production out of Venezuela and Libya is expected to drop.
Rig Count
Last week, U.S. energy firms added oil rigs for a fifth time in six weeks, keeping the rig count at its highest in over three years and crude production from shale basins at a record high.
According to General Electric’s Baker Hughes energy services firm, drillers added two oil rigs in the week to November 16, bringing the total count to 888, still the highest level since March 2015.
Forecast
Technical and fundamental factors combined to stabilize WTI and Brent prices inside major retracement zones last week.
For January WTI crude oil futures, the major range is $58.95 to $54.79. Look for an upside bias to develop on a sustained move over $58.95 and for the downside bias to resume on a sustained move under $54.79.
For January Brent crude oil, the major retracement zone is $67.53 to $63.11. Look for an upside bias to develop on a sustained move over $67.53 and for the downside bias to resume under $63.11.
This week is a U.S. holiday-shortened week so volume may be low. This can hold prices in a range, or it can fuel wicked price moves. The tone of the market is likely to be determined by trader reaction to any news having to do with OPEC and OPEC-led production cuts.
The Saudi’s want to cut, but are feeling pressure from President Trump to keep producing. The Russians like the cash flow being generated by rising production. The U.S. wants to continue to produce based on the rising rig count.
These tensions may be enough to hold prices in a range this week. Nothing is expected to be decided anyway until the ministers from OPEC meet on December 6 in Vienna to decide on production policy for the next six months. They are primarily going to discuss what to do about a growing surplus in world markets.
This article was originally posted on FX Empire
