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Oil Price Fundamental Daily Forecast – How Fed Decision Affects Dollar Could Set Tone This Week

By:
James Hyerczyk
Published: Dec 17, 2018, 10:32 UTC

Last week’s news that Saudi Arabia plans to cut shipments to U.S. refiners combined with the drop in the number of U.S. rigs could develop into something bullish. However, not until the moves show up in the weekly U.S. Energy Information Administration inventories reports.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed to lower on Monday as investors continue to digest the OPEC-led decision to reduce production. The group, primarily led by Saudi Arabia and Russia, hopes that a 1.2 million barrel reduction in supply beginning January 1 will eventually trim the current excess supply and help stabilize prices.

At 0959 GMT, February WTI crude oil futures are trading $51.51, up $0.04 or +0.08% and February Brent crude oil is at $50.27, down $0.01 or -0.02%.

Supportive Factors

One factor supporting prices is last week’s news report that said Saudi Arabia plans to cut shipments to U.S. refiners to avoid a build-up of U.S. stockpiles.

Additionally, the International Energy Administration (EIA) said on Thursday it expected a deficit in oil supply by the second quarter of next year, provided OPEC members and other key producers struck closely to the deal to cut output. The IEA kept its 2019 forecast for global oil demand at 1.4 million bpd, unchanged from its production last month, and said it expected growth of 1.3 million bpd this year.

Furthermore, prices could get a boost during the first half of 2019 with the end to the Iran sanction waivers.

Bearish Factors

Prices are being capped by falling U.S. stock markets, and weak economic data from China that pointed to lower demand from the world’s biggest oil importer. Rising U.S. production is also a concern as well as the strengthening U.S. Dollar.

In other news, U.S. energy firms cut four oil rigs in the week to December 14, General Electric Co.’s Baker Hughes energy services firm said in its closely followed report on Friday. The data is seen as an indicator of future production.

Additionally, hedge funds cut bullish wagers on U.S. crude to the lowest levels in more than two years in the week to December 11, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

Forecast

Last week’s news that Saudi Arabia plans to cut shipments to U.S. refiners combined with the drop in the number of U.S. rigs could develop into something bullish. However, not until the moves show up in the weekly U.S. Energy Information Administration inventories reports.

The other factor to watch this week will be the U.S. Dollar. The Fed is expected to raise rates. This has already been priced into the market. The Fed statement and remarks from Chairman Powell will be the keys to this meeting. Powell has to find a way to come across as dovish so that he can calm the financial markets which have seen heightened volatility since his hawkish comments in early October.

This could be tricky because if he comes across as too dovish then this may signal a weakening economy. This could drive stock prices lower, the dollar higher and crude oil prices lower.

If he accomplishes his task then yields should weaken, making the U.S. Dollar a less-desirable asset. A weaker dollar could drive up foreign demand for dollar-denominated crude oil.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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