Oil Price Fundamental Daily Forecast – Saudis, Russians May Be Discussing Production Cuts

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher early Thursday as the market tries to recover from yesterday’s plunge that was fueled by a bearish government inventories report. Additionally, rising supply has raised the issue of fresh production cuts from OPEC to curb the oversupply situation.

At 0659 GMT, December WTI crude oil is trading $61.84, up $0.17 or +0.29% and January Brent crude oil is at $72.27, up $0.20 or +0.28%.

Wednesday sell-off was triggered by the U.S. Energy Information Administration’s (EIA) weekly inventories report. According to the EIA, U.S. crude inventories rose by 5.8 million barrels in the week-ending November 2, to 431.79 million barrels. Traders were looking for a build of 2.4 million barrels. The current series of weekly increases has pushed crude stocks back above their five-year average.

More importantly and more bearish for prices, U.S. crude production hit a record 11.6 million barrels per day (bpd) in the week-ending November 2. The number represents a 22.2 percent rise in 2018, while making the United States the world’s biggest producer of crude oil.

Additionally, the EIA now says that U.S. output should reach 12 million bpd by mid-2019.

In other news, after nearly a week since the sanctions against Iran started, prices are still headed lower. Traders, who expected prices to rise because of the sanctions have been burned badly by the rise in production and the eight 180-day waivers the U.S. gave Iran’s biggest customers.

Forecast

The U.S. has to share the blame for lower prices with other countries ramping up production including Russia, Saudi Arabia, Iraq and Brazil. However, this hasn’t gone unnoticed by OPEC, which is raising concerns of a return to oversupply. On Wednesday, there was a report that Saudi Arabia and Russia are already in talks about reducing production in 2019. The report was based on comments from two OPEC sources.

According to the report, Saudi Arabia and Russia may use production cuts in early 2019 to support $70 per barrel.

With the EIA report out of the way, the focus may begin to move away from rising U.S. production to the possibility of new production cuts from the Saudis and Russians. We could start to see a short-covering rally if this story begins to gain momentum.

Additionally, traders will be watching this week’s U.S. rig count to see if lower prices have encouraged producers to shut down a few rigs.

Finally, a weaker U.S. Dollar could also help stabilize prices because this could drive up foreign demand for dollar-denominated crude oil.