Oil Fundamental Forecast – October 11, 2016

Crude oil futures posted strong gains on Monday after Russia said it wanted to be part of the OPEC deal to curb crude production. November West Texas Intermediate Crude Oil futures closed at $51.35, up $1.54 or +3.09%. International benchmark Brent crude futures finished the session at $53.73, up $1.06 or +2.00%.

After early session weakness caused by Friday’s technical reversal top chart pattern, crude oil futures mounted a strong rebound rally after Russian President Vladimir Putin said an output freeze or even a production cut were likely the only right decisions to maintain energy sector stability.

“Russia is ready to join the joint measures to cap production and is calling for other oil exporters to join,” Putin said, speaking at an energy congress in Istanbul.

Adding to the rally were comments from Saudi Energy Minister Khalid al-Falih who said he was optimistic that the deal would get done when OPEC meets formally in November in Vienna. Algerian Energy Minister also welcomed the support from Putin. He added that he expected to see “commitments” on cuts from non-OPEC oil producers later in the week as the meetings in Istanbul continued.

FORECAST

Momentum is clearly on the side of the bulls right now which likely means that barring any bearish surprises on Tuesday, the rally is likely to continue. Supporting the bullish trend is strong hedge fund buying. According to the U.S. Commodity Futures Trading Commission’s recent Commitment of Traders report released on Friday, money managers have built their largest bullish position in WTI crude oil in more than four months on OPEC’s planned output cut.

According to some experts, a large amount of room still exists for additional speculative buying that could drive the U.S. crude market into $52 to $55.

There still some skeptics, however. They claim that the market’s upside will be limited once investors start demanding to see the specifics of the deal. Not-so-bullish traders also cited comments from Saudi Arabia’s Falih on Monday as evidence that a top may be near. Falih said that OPEC should not cut oil supply too steeply, hinting at milder market intervention. “It is a very gentle hand on the wheel, we are not doing anything dramatic,” Falih said, speaking at the World Energy Congress in Istanbul.

Issues with Iraq and Iran could also weigh on prices if they become a problem at the formal talks in Vienna in November. Both countries are not attending the oil congress in Istanbul. Iran even said over the weekend that it wants to raise output further in 2017.

Although momentum is expected to continue to support oil prices on Tuesday, traders should pay attention to the news from the International Energy Agency. It is going to release its monthly report on global oil supply and demand. Traders will be looking for any adjustments due to the OPEC plan.

More good news from Istanbul will be supportive for prices. Negative news and technically-based selling due to overbought conditions will encourage profit-taking.

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