Oil Price Fundamental Daily Forecast – OPEC+ Wants Overproducers to Cut Their Output

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading steady-to-better on Friday, putting the markets in a position to post their third consecutive weekly gain. The catalyst behind the early strength is major oil producers’ efforts to hold back output amid concerns about the pace of economic recovery from the coronavirus pandemic.

At 08:01 GMT, October WTI crude oil futures are trading $42.68, down $0.14 or -0.33% and December Brent crude oil is at $45.89, down $0.08 or -0.17%.

OPEC+ Enforcing Production Cut Compliance

An internal report by the Organization of the Petroleum Exporting Countries and allies, showed the group known as OPEC+ was focused on ensuring that members who had overproduced against their commitments would cut their output, as flagged following an OPEC+ meeting on Wednesday, Reuters reported.

Reuters also said that OPEC+ found some members would need to slash output by 2.31 million barrels per day to make up for their recent oversupply.

Among OPEC members, Iraq and Nigeria were the least compliant and even the United Arab Emirates, which made additional voluntary cuts in June, overproduced by around 50,000 bpd over the May-July period.

The internal report also flagged demand risks, showing OPEC+ expects oil demand in 2020 to fall by 9.1 million bpd, 100,000 bpd more than in its previous forecast.

Finally, the OPEC+ panel said that if a prolonged second wave of infections hits China, India, Europe and the United States in the second half of the year, demand could fall by 11.2 million bpd in 2020.

Daily Forecast

Clearly, OPEC+ believes their production cut agreement is helping to stabilize oil prices and that may very well be true since we’ve seen prices appreciate since it was initially implemented. However, policymakers believe they could do better, but need cooperation from non-compliant members to toe the line to bring the supply/demand closer to equilibrium.

Full compliance is likely to continue to underpin the markets, but the poor demand situation is likely to limit gains. Therefore, we continue to expect a most rangebound trade until demand issues improve, particular for gasoline and jet fuel. However, we may not see any substantial increase in demand for fuels until the number of global COVID-19 cases begins to flatten out, or a successful vaccine is developed.