Oil Fundamental Forecast – October 24, 2016

Oil prices followed through to the downside after Thursday’s sharp break, but the markets were able to recover enough to rally into the close. December WTI Crude Oil finished at $50.85, up $0.24 or +0.47%. December Brent Crude closed at $51.78, up 0.40 or +0.78%.

The markets traded mostly sideways at the beginning of the week as the bulls continued to put their trust in OPEC ironing out the details of its planned production cuts. The market spiked higher at the mid-week after the U.S. Energy Information Administration reported another drawdown in supply.

WTI crude oil took out the previous week’s high at $52.16, but the rally stalled at $52.22 when it ran out of buyers. Profit-takers then took over, driving the market lower for the session and in a position to finish the week in a potentially bearish position. However, prices recovered just enough to prevent this from happening.

Forecast

There was a potentially bearish development over the week-end that could pressure prices on Monday. Iraq said it wanted to be exempt from any deal by producer cartel OPEC to cut production to prop up the market.

Iraq’s deputy oil minister Fayadh al-Nema said, “We are not going back in any way, not by OPEC not by anyone else.”

At last report, Iraq’s oil production stood at 4.774 million bpd, with exports standing at 3.87 bpd. OPEC plans to reduce production to a range of 32.50 million to 33.0 million barrels per day, down from 33.39 million bpd in September.

Based on this assessment, OPEC will have a hard time achieving its planned cutbacks if OPEC-member Iraq didn’t participate in the program.

This issue can grow into a big problem that may even threaten the entire deal. Because of this, we could see oil prices come under pressure in Monday’s session.

Other potentially bearish factors for Monday include a jump in the number of producing oil rigs and a drop in Japan’s crude imports.

According to Baker Hughes, U.S. oil rigs rose by 11 last week, the first double-digit growth since August. This news affects the supply side of the equation.

On the demand side, Japan’s crude imports fell 4.6 percent in September from the same month a year earlier, to 3.27 million bpd, the Ministry of Finance said on Monday.

The combination of last Thursday’s technical reversal and the new development over the week-end regarding Iraq may be enough to give investors another excuse to book profits. I’m looking for sellers to pressure $50.94 this week on the December Brent chart and $49.71 on the December WTI chart. Both of these levels are potential trigger points for even steeper breaks.