Oil Price Fundamental Daily Forecast – Inching Toward 5 Month Highs as Hedge Funds Shift Focus to Products

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher after recovering from earlier weakness. The markets are now within striking distance of their five-month highs reached earlier in the month.

Underpinning the market is a report from OPEC+ that said the producer grouping is almost fully complying with output cuts to support prices amid a drop in demand for fuels due to the coronavirus pandemic, Reuters said.

Perhaps capping gains are concerns over future demand after a report from Japan on Monday, the world’s third-biggest economy, showed its economy is likely to contract more than previously expected due to the pandemic. Last week, both OPEC and the International Energy Agency (IEA) warned about lower demand the rest of the year. The U.S. Energy Information Administration (EIA) reduced its global oil demand forecast, suggesting a smaller than previously expected reduction in global inventories.

At 08:23 GMT, October WTI crude oil is trading $43.19, up $0.02 or +0.05% and December Brent crude oil is at $46.47, up $0.08 or +0.17%.

OPEC+ Reports Output Cut Compliance

Compliance with OPEC+ oil output cuts was seen at around 97% in July, two OPEC+ sources told Reuters. The oil producers curbed output by record levels to reduce worldwide inventories, as demand collapsed from the pandemic.

OPEC and its allies in August reduced their agreed cuts to 7.7 million barrels per day from 9.7 million bpd previously as prices started picking up in recent months.

OPEC+ Panel Meeting on Wednesday

Investors will be looking for more clues on future supply from a meeting on Wednesday of a panel representing ministers of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+.

The panel, called the Joint Ministerial Monitoring Committee (JMMC), monitors OPEC+ production curbs agreed earlier this year. Last month, the JMMC recommended that cuts be eased from August 1 to about 7.7 million barrels per day (bpd) from a reduction of 9.7 million bpd since May, in line with an earlier OPEC+ agreement.

Traders will be primarily concerned with whether there will be another adjustment to the quota in September.

Daily Forecast

With WTI and Brent pennies away from their five-month highs, traders will be watching to see if there will be enough upside momentum to drive through these levels, or if sellers will come in to stop the move. The lack of momentum may be a function of the lack of participation of the hedge funds in the crude oil rally.

According to Reuters, “Hedge funds’ oil trading remained very light last week as the normal summer holiday slowdown was compounded by the lack of clear signals about the future direction of the market.”

“In the absence of strong signals about the overall direction of prices, some hedge funds and other money managers are turning their attention to relative value plays, betting that oil products will outperform crude,” Reuters said.

Finally, at 20:30 GMT, the American Petroleum Institute (API) will release its weekly inventories report. It is expected to show a 2.9 million barrel decline.