Oil Price Fundamental Daily Forecast – OPEC+ Could Extend Production Cut Deal Six to Nine Months

U.S. West Texas Intermediate and international-benchmark Brent crude oil are trading higher on Monday, shortly before the regular session opening. The markets opened steady-to-better on the back of the positive news regarding U.S.-China trade relations, and held on to most of those gains on the hope that OPEC and its allies would extend supply cuts until at least the end of 2019 at their meeting in Vienna on July 1-2.

At 11:05 GMT, August WTI crude oil is trading $59.79, up $1.32 or +2.26% and September Brent crude oil is at $66.18, up $1.44 or +2.22%.

Supply Side Factors

No one can question the impact the OPEC-led production cuts had on prices since January 1 when the cartel and its allies agreed to remove 1.2 million barrels of oil per day. The program did what it was supposed to do. It trimmed the global supply and it stabilized prices. Continuing the program would be supportive for WTI and Brent prices.

Additional factors helping to underpin prices are the U.S. sanctions against Iran and Venezuela, both OPEC members. Last month, rising tensions between Iran and the United States also drove prices higher. Traders have taken insurance against a supply disruption, providing a further boost to prices. This move was generated by attacks against two tankers by Iran, and the shooting down of a U.S. drone by the rogue nation.

The main concern for supply-side traders is rising U.S. stockpiles and inventories.

Demand Side Factors

The on-going trade dispute between the United States and China is raising concerns over a global economic slowdown, or recession. According to reports from OPEC, the EIA and the IEA, demand could plunge late in the year if the trade spat continues.

Daily Forecast

Prices are being underpinned on Monday because of positive supply and demand developments.

On the supply side, OPEC and its allies are widely expected to extend the program to reduce supply. This program is aimed at combatting low demand because of a weakening global economy and rising U.S. production.

Before the meeting, Saudi Energy Minister Khalid said the deal would most likely be extended by nine months and no deeper reductions were needed. Russian President Vladimir Putin agreed with Saudi Arabia to extend existing output cuts of 1.2 million barrels per day (bpd) by six to nine months.

On the demand side, traders are feeling relief after the United States and China agreed to resume trade talks after calling off negotiations about two months ago. The news is friendly to prices although investors have to realize that the two economic powerhouses still have major issues to work out before a deal could be completed.