Oil Price Fundamental Daily Forecast – Brent Needs Production Cut Extension to Sustain Rally Over $60.00

U.S. West Texas Intermediate and international-benchmark Brent crude oil finished mixed on Wednesday. Brent crude was supported by comments from Saudi Arabia’s energy minister on Tuesday reiterating the country’s determination to end a three-year supply glut. WTI crude was pressured by a surprise build in

December WTI Crude Oil settled at $52.18, down $0.29 or -0.55% and January Brent Crude Oil finished at $58.23, up $0.06 or +0.10%.

According to the U.S. Energy Information Administration (EIA), crude oil inventories rose 856,000 barrels in the week to October 20. Traders were looking for a decrease of 2.6 million barrels. The report also showed that production rebounded from a steep decline due to Hurricane Nate, and imports rose as well.

The EIA report also showed gasoline and distillate inventories fell by more than 5 million barrels, and refinery utilization rates rose 3.3 percentage points.

Earlier in the week, Saudi Arabian Energy Minister Khalid al-Falih raised hopes of a prolonged cut in production after the initial OPEC-led pact to trim output expires at the end of March 2018.

Forecast

Crude oil prices are trading flat early Thursday. Underpinning the market is the supply disruption in the Middle East that has led to a drop in Iraqi inventories. Limiting gains are concerns of increasing U.S. production.

Kurdish authorities on Wednesday offered to suspend their independence drive, but Baghdad said it would continue its offensive to retake Kurdish territory.

Global inventory levels are falling and demand is strong, but prices haven’t been able to overtake the key psychological $60 level partly due to concern the crude glut may grow again after March 2018 when the deal to cut production is due to conclude.

This situation can be fixed as early as November 7 at the OPEC meeting in Vienna, Austria. At that time, the OPEC-led group may announce an extension of the production cuts beyond the March deadline. This will probably be the news that bullish traders have been waiting for. It should be enough to send Brent crude oil soaring over $60.00. WTI is likely to rally too.

Despite this bullish news, gains may be limited, however, because U.S. companies may continue to produce at a record pace.