Oil Price Fundamental Daily Forecast – OPEC Looking to Cut Up To 1.4 Million Bpd of Output

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed shortly before the regular session opening on Tuesday. The markets are being underpinned by expectations that OPEC will propose new production cuts, but prices are being capped by heightened volatility and another sell-off in the stock market.

At 1122 GMT, January WTI crude oil is trading $57.33, up $0.13 or +0.23% and January Brent crude oil is at $66.65, down $0.14 or -0.18%.

Supply Concerns

Production is rising, led by increasing output from the United States, Russia and Saudi Arabia, which now accounts for about a third of U.S. daily consumption.

U.S. energy firms added two oil rigs in the week to November 16, bringing the total count to 888, the highest level since March 2015, according to energy services firm Baker Hughes.

Demand Worries

Signs of lower demand are beginning to emerge. On Monday, Japan’s Ministry of Finance reported that October crude oil imports fell by 7.7 percent from the same month last year, to 2.77 million barrels per day (bpd).

Helping to keep a lid on prices are signs of lower demand due to the lingering trade disputes between the world’s two biggest economies, the United States and China.

Major Players are Staying Away

Money managers cut their bullish wagers on crude oil futures and options to their lowest level since June 2017, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

The hedge fund and commodity fund money managers cut its combined futures and options positions on U.S. and Brent crude during the week-ended November 13 to the lowest level since June 27, 2017.

Additionally, according to CNBC, portfolio managers have sold the equivalent of 553 million barrels of crude and fuels in the last seven weeks, the largest reduction over a comparable period since at least 2013.

Furthermore, funds now hold a net long position of just 547 million barrels, less than half the recent peak of 1.1 billion at the end of September, and down from a record 1.484 billion in January.

Forecast

According to early reports, traders are expecting top exporter Saudi Arabia to push OPEC and other non-OPEC investors to cut supply towards the end of the year. The most difficult task, however, remains convincing Russia to go along with the plan. OPEC and its allies are expected to cut output by 1 million to 1.4 million bpd. The agreement should be struck at its next official meeting on December 6.

Prices are likely to remain rangebound until the production cuts are confirmed or the hedge funds begin to increase their bullish bets again.

For WTI crude oil, the important price range is $58.95 to $54.79. Holding inside this range means traders are sitting tight while waiting for the OPEC news. A bullish tone could develop on a sustained move over $58.95. The bearish move is likely to resume on a sustained move under $54.79.

The key area for Brent crude is $67.53 to $63.11. The short-term trend will be neutralized inside this zone. A stronger tone will develop on a sustained move over $67.53. A weaker tone will reemerge under $63.11.

As a side note, Brent could spike back to $80 a barrel if the deal is struck, but the International Energy Agency (EIA) warns of the “negative implications” of supply cuts. It claims that a spike in crude prices could erode consumption.