Oil Price Fundamental Daily Forecast – Thin-Trading Conditions, Oversold Technicals Could Fuel Short-covering Rally

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Friday after hitting another multi-month low the previous session. Volume is light as investors may be preparing for a long Christmas holiday week-end. Although thin trading conditions tend to limit the trading range, they can often produce whipsaw trading conditions.

At 0824 GMT, February WTI crude oil is trading $46.41, up $0.52 or +1.11%. February Brent crude oil is at $54.80, up $0.45 or +0.85%. Despite the early strength, both futures contracts are expected to finish the week with steep losses.

Traders are saying today’s early session boost is being fueled by the notion that OPEC’s production cuts that start next month will be deeper than expected.

According to Reuters, which reviewed a letter from OPEC’s secretary-general Mohammad Barkindo, “OPEC plans to release a table detailing output cut quotas for its members and allies such as Russia in an effort to shore up the price of crude.”

Barkindo went on to say that in order to reach the proposed cut of 1.2 million barrels per day, the effective reduction for member countries was 3.02 percent. This figure is higher than the initially discussed 2.5 percent as OPEC seeks to accommodate Iran, Libya and Venezuela, which are exempt from any requirement to cut.

The news is fueling some short-covering early Friday, but gains are likely being capped by worries over the strength of the global economy heading into next year. Heightened stock market volatility and concerns over a government shutdown are also weighing on prices.

Forecast

Thin-trading pre-holiday conditions could lead to a tight trading range today. Even if there is a rally, the move is likely to be fueled by short-covering rather than aggressive counter-trend buying. Furthermore, without a support base in place, it is going to be difficult for WTI and Brent to mount sizable rallies at this time.