Oil Price Fundamental Daily Forecast – Despite Rally, Buyers Still Concerned Over Rising U.S. Production

Crude oil continued to receive support from speculation that the OPEC-led production cut due to expire next March would be extended, although rising exports from Iraq kept a lid on prices.

Traders are saying that they expect to see the production cuts extended when OPEC officially meets at its headquarters in Vienna, Austria, on November 30.

In other news, traders said that a 900,000 barrel per day export capacity increase from Iraq’s southern ports to 4.6 million bpd, reported on Sunday, had prevented Brent from rising further.

Forecast

The same old story is helping to hold crude oil prices in a range early Tuesday. The market is being supported by a tightening market due to ongoing OPEC-led efforts to cut supplies. Gains are being limited, however, by the prospect of rising U.S. shale output. Also supporting prices is increasing hedge fund buying.

At 0635 GMT, December West Texas Intermediate Crude Oil futures are trading $54.09, down $0.06 or -0.11%. January Brent Crude Oil is at $60.51, down $0.08 or -0.13%.

The current bullish tone is being fueled by optimism over an extension of the OPEC-led program to cut production, trim the global supply and stabilize prices. Saudi Arabia and Russia have voiced public support for extending the production cuts beyond their March 2018 deadline to the end of 2018.

Despite the recent gains, some bullish investors are saying the market may be nearing a top due to overbought technical factors and the possibility that the U.S. will step up shale production to take advantage of the relatively high prices.

According to Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers, “U.S. shale output could keep a lid on prices over the medium to long-term.”

Additionally, WTI’s $6.7 per barrel discount to Brent is a result of rising American crude production, which is up almost 13 percent since mid-2016 to 9.5 million barrels per day (bpd), making U.S. crude exports highly profitable.

At this time speculative buying is supporting the market since the OPEC extension decision is a month away. The price action at this time is likely to be determined by whether speculators will continue to aggressively buy strength, or play for a pullback into support. Overbought conditions may give the speculators an excuse to book profits this week. This will likely lead to a short-term pullback into support.

Later today, the American Petroleum Institute will release its weekly inventories data. On Wednesday, investors will get the opportunity to react to the U.S. Energy Information Administration’s weekly inventories report.