Oil Fundamental Forecast – December 19, 2016
Crude oil prices moved higher on Friday in a tentative trade. The market was primarily supported by the news that Kuwait had told customers it was cutting supplies by more than initially expected from January as part of the group effort by OPEC and major non-OPEC producers to reduce the global supply glut.
North Sea and internationally favored Brent crude oil closed at $55.82, up $1.11 or +2.03%. March U.S. West Texas Intermediate crude oil finished the session at $53.87, up $0.96 or +1.81%.
Earlier in the week, Kuwait Petroleum Corporation said that it had officially notified its customers of a cut in their contractual crude oil supplies for January. This news was in line with the plan by OPEC and other producers to cut production by almost 1.8 million barrels per day (bpd) in order to reduce supply and stabilize prices.
On Friday, oil prices firmed after Kuwait made it clear to traders that it will actually be reducing supplies more than initially expected.
Other news that underpinned prices on Friday included comments from Russian Energy Minister Alexander Novak. He said that all Russian oil companies had agreed to cut crude output.
The week-ended with oilfield services provider Baker Hughes reporting that the number of rigs drilling for oil in the U.S. last week rose by 12 to 510, its highest level in almost a year.
Monday’s price action could be influenced by the U.S. Dollar especially if the Greenback weakens because of year-end profit-taking after a spectacular rally since November 8.
As usual, the price action will be manipulated by Tuesday’s American Petroleum Institute report and Wednesday’s U.S. Energy Information Administration’s weekly stockpiles report.
However, I believe the major influence this week will be whether more OPEC and non-OPEC members announce to customers their intent to reduce supply.
As far as volatility is concerned, we could see weakness at any time if Iran or Iraq decide to opt out of the production-cut deal.
Furthermore, we could also see wild price action if the U.S. decides to retaliate against Russia for hacking the U.S. Presidential election. The markets could get particularly volatile if the retaliation involves oil market sanctions.