Oil Price Fundamental Daily Forecast – Aggressive Short-covering Being Fueled by Expected OPEC-led, Canadian Production Cuts

U.S. West Texas Intermediate and international-benchmark crude oil futures are surging more than 2 percent shortly before the regular session opening on Tuesday. The move is being fueled by aggressive short-covering as traders pare positions ahead of the announcement of production cuts by an OPEC-led group and an unprecedented mandated reduction in Canadian supply.

At 1250 GMT, January WTI crude oil is trading $54.03, up $1.07 or +2.04% and February Brent crude oil is at $63.10, up $1.41 or +2.29%.

OPEC, led by de facto leader Saudi Arabia, had been proposing production cuts for several weeks, but the markets didn’t start stabilizing until last week when Russia said it was also on board for the cuts. The market is current pricing in a reduction of between 1.0 million bpd and 1.4 million bpd.

The cartel and its allies will meet on December 6 in Vienna to agree on the final figure and to discuss strategy.

At this time, traders seem to be in agreement that it is going to take at least a 1.3 bpd reduction and a joint effort by OPEC and Russia to stabilize supply and push Brent crude oil prices into the mid-$60 per barrel range.

The expected production slash by OPEC and Russia has underpinned the markets and produced most of the short-covering rally, however, pushing the markets over the top may be the surprise news that Canadian producers have been ordered to scale back output by 325,000 bpd until excess crude in storage is reduced.

WTI Traders are watching the $54.69 to $55.05 area. Reaction to this zone will determine the direction of the market the rest of the session on Tuesday. Since the trend is down, we could see a technical bounce on the first test of this zone. However, taking out $55.05 could trigger another acceleration to the upside.

Later today, investors will get the opportunity to react to the latest weekly storage report from the American Petroleum Institute.