Oil Price Fundamental Daily Forecast – Position-Squaring Ahead of OPEC Meeting Boosting Prices

Going into the meeting, Saudi Arabia and Russia are in favor of raising output. Other OPEC members like Iran, Iraq and Venezuela have opposed this idea. Although traders have been pricing in a production hike for about a month, there is still some uncertainty over the size of the hike and the timing of the increases.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher shortly before the regular session opening on Friday. Traders are saying that short-covering and position-squaring is driving the price action, heading into today’s OPEC meeting in Vienna later in the day, after almost a month of selling pressure

At 0852 GMT, August WTI crude oil futures are trading at $66.28, up $0.74 or +1.11% and August Brent crude oil is at $74.03, up $0.99 or +1.35%.

The uncertainty heading into today’s OPEC meeting has kept many of the major hedge funds on the sidelines for weeks because even with their resources, they have been unwilling to place bets on either side of the market, given the volatility usually associated with an OPEC meeting.

Although the meeting starts on Friday, traders may not know the outcome of it until Saturday so we could see volatile gyrations today.

Going into the meeting, Saudi Arabia and Russia are in favor of raising output. Other OPEC members like Iran, Iraq and Venezuela have opposed this idea. Given this situation, there has been a lot of behind the scenes negotiations going on in an effort to reach some kind of compromise so OPEC and the other major producers can move forward with their plan to stabilize prices.

Although traders have been pricing in a production hike for about a month, there is still some uncertainty over the size of the hike and the timing of the increases.

Phillip Futures is predicting “an approximate 300,000-600,000 barrels per day (bpd) hike by Saudi Arabia and Russia collectively.”  U.S. investment bank Jefferies said an increase in “the range of 450-750,000 bpd seems the most likely outcome” of the meeting.

Most analysts agree that the increases are necessary to offset the declines in Venezuela due to the economic turmoil, and the drop in Iranian exports because of U.S. sanctions.

Prices are likely to remain volatile even after OPEC’s decision because the trade conflict between the U.S. and China could escalate. Oil traders fear that Beijing could impose a 25 percent duty on U.S. crude imports. If this occurs then American oil would become uncompetitive in China, forcing the large importer to seek buyers elsewhere. This could dampen any rally and even extend recent losses in the market.

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