Oil Price Fundamental Daily Forecast – Thin Volume, No EIA Data Until Friday Encouraging Profit-Taking

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed on Monday as investors backed away from increasing their bullish bets ahead of the Christmas and New Year holidays, while waiting for fresh developments on the Sino-U.S. trade front.

The hope that the Phase One agreement between the two economic powerhouses would lead to increased demand growth helped drive the markets to multi-month highs last week.

At 13:02 GMT, February WTI crude oil is trading $60.46, up $0.02 or +0.03% and March Brent crude oil is at $65.31, up $0.11 or +0.17%.

Oil prices have risen since the United States and China agreed on a so-called Phase One trade deal earlier this month following months of steadily increasing tariffs that unsettled markets and raised concerns over a global recession and future demand growth.

Under the deal due to be signed in January, the United States is expected to agree to reduce some tariffs in return for a big increase in purchases of U.S. agricultural products by Chinese importers.

Further boosting prices was an OPEC deal to cut oil production. In late November, the cartel and its allies reached a deal Friday to cut production by 500,000 barrels per day in a bid to stem prices, which have been under pressure from abundant reserves and weak global economic growth.

The new deal calls for a cut effective as of January 1, which sets an output target of 1.7 million barrels per day, lower than October 2018 levels, with Saudi Arabia and Russia making almost half the additional reductions between them.

Daily Forecast

While most analysts attribute the two-day weakness in the market to profit-taking and position-squaring ahead of the next two holiday shortened weeks, some are saying Russia may be having trouble with the production cut agreement.

The backdrop:  OPEC and other top producing nations led by Russia agreed this month to extend and deepen output cuts in the first quarter of 2020.

The issue:  Russian Energy Minister Alexander Novak said on Monday that the group known as OPEC+ may consider easing the output restrictions at their meeting in March.

“We can consider any options, including gradual easing of quotas, including continuation of the deal,” Novak told Russia’s RBC TV in an interview recorded last week, adding that Russia’s oil output was set to hit a record high this year.

Another problem crude oil bulls are facing is rising Non-OPEC global supply. It is expected to rise next year due to higher output from countries including the United States, Brazil, Norway and Guyana, which became an oil producer last week.

Another source of more oil could emerge in the coming months after Kuwait indicated that a long-standing dispute over the “Neutral Zone” on its border with Saudi Arabia will resolve by the end of 2019.

Furthermore, with oil prices rising sharply this week, data showed that U.S. energy companies added the most oil rigs last week since February 2018.

Finally, traders aren’t going to know anything about U.S. supply this week until Friday when the Energy Information Administration reports weekly inventories. This news, combined with the low holiday volume is going to make it difficult to trade crude oil.