Oil Price Fundamental Daily Forecast – Expect Volatile Reaction to Production Cut Announcement

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Friday, but inside yesterday’s range. The price action suggests investor indecision and impending volatility. Traders are being indecisive because they are waiting for the OPEC-led production cut announcement. We’re looking for a volatile reaction in the market when the number is announced.

At 0812 GMT, January WTI crude oil is trading $51.26, down $51.23 or -0.47%. February Brent crude oil is at $59.88, down $0.18 or -0.30%.

Traders are nervous ahead of the announcement because of yesterday’s comments from the Saudi Arabian oil minister and the absence of Russia at yesterday’s talks. The delay in the final decision on output cuts on Thursday rattled traders enough to fuel a sharp intraday break.

According to reports, Russia remains the sticking point. The market is confident there will be some form of supply reduction, but the amount remains a secret. Earlier in the week, traders were pricing in a cut of 1.4 million barrels, but prices plunged on Thursday after the Saudi’s said they would be happy with a cut of 1.0 million barrels.

What the price action is suggesting is that a 1.0 million barrel cut may be enough to support prices, but not enough to fuel a strong rally. The chart pattern suggests that a number at or near the upper end of the range of guesses could trigger a breakout to the upside.

The daily January WTI crude oil chart indicates that holding over $51.98 will be the first sign of strength. Taking out $53.52 will be the next. However, the true trigger point for an acceleration to the upside is $54.79.

A failure to hold $49.41 could lead to a further break into a pair of main bottoms at $47.96 and $46.00.