Oil Fundamental Forecast – November 7, 2016

Crude oil futures finished Friday’s session sharply lower as investors continued to react to the strong possibility that OPEC will not be able to muster up enough support for its plan to curtail production by the time the cartel holds its formal meeting on November 30 in Vienna.

Sellers also continued their assault on prices in reaction to the growing global supply glut. The massive liquidation back to levels not seen since August 11 indicates that euphoria over OPEC’s plan to cut production, first revealed on September 28, has been wiped out. This suggests that the only way to start another rally and to sustain it, will be to come to an agreement to reduce production or face a further weakening of crude oil prices.

Unless there are secret talks going on behind the scenes, it looks like OPEC is going to have an uphill battle at its meeting on November 30 since the divisions in the ranks seem to be quite large and insurmountable at this point in time.

The tension is so great that judging from the price action, investors are betting strongly against any deal being reached.

On Friday, it was reported by Reuters that Saudi Arabia threatened to raise oil output steeply to bring prices down if Iran refused to limit its production. However, this claim was refuted by a Gulf OPEC source. He said Saudi Arabia “did not threaten” anyone with production increases at an OPEC meeting last week, but the source warned that production around the world will rise if there is no output limiting deal.

In other news, the U.S. oil rig count resumed its rise following its first dip in roughly four months in the previous week. U.S. drillers added 9 rigs in the last week for a total of 450. At this time last year, there were 572 rigs in operation.

Traders were also concerned about the outcome of the presidential election on Tuesday. However, some of these concerns may have been lifted on Sunday when the FBI announced it had cleared Hillary Clinton a second time in its investigations of her emails.

This news may cause a slight relief rally, however, at the start of the week, the fundamentals remain weak, with U.S. crude stocks surging, demand growth low and doubts that OPEC can make a deal to curb production.

The fresh news over the week-end is likely to be supportive for crude oil early in the session, but this is likely going to be short-covering or position-squaring. Oversold conditions may also make the market attractive to speculative investors, but smart money is not likely to take meaningful positions until after November 30.

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