Oil Price Fundamental Daily Forecast – Traders Continue to Assess Impact of Production Cuts Amid Other Uncertainties

There is just too much uncertainty floating around to sustain a rally at this time, which suggests we’re likely to see a sideways to lower trade unless the global equity markets start to improve and the U.S. Dollar weakens with more conviction than we’ve seen over the past few weeks.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower early Tuesday despite a report that Libya’s National Oil Company declared force majeure on exports from the El Sharara oilfield, which was seized over the week-end by a local militia group.

The markets are also trading inside yesterday’s range which indicates investor indecision and impending volatility. Despite Friday’s OPEC-led decision to trim output by 1.2 million barrels per day starting in January, overall sentiment remains a little bearish as traders cast doubts that the planned supply cuts will be enough to trim supply and stabilize prices.

At 0846 GMT, February WTI crude oil is trading $51.04, down $0.16 or -0.31% and February Brent crude oil is at $59.78, down $0.19 or -0.32%.

Libya’s NOC Declares Force Majeure

According to a report, Libya’s National Oil Company (NOC) late on Monday declared force majeure on exports from El Sharara oil field, the country’s biggest, which was seized over the weekend by a militia group.

NOC said the shutdown would result in a production loss of 315,000 barrels per day (bpd), and an additional loss of 73,000 bpd at the El Feel oilfield.

Monday’s Recap

Crude prices fell on Monday, giving up early strength, as investors reacted to a steep decline in U.S. equity markets. Traders also continued to express concerns that global economic weakness would lead to a drop in demand which could offset any gains from the planned production cuts.

Money Managers Express Doubts

Money managers reduced their bullish bets on crude to the lowest level in more than two years in the week-ending December 4, according to U.S. Commodity Futures Trading Commission (CFTC) data. The major speculators trimmed their combined futures and options position in New York and London by 25,619 contracts to 144,775 during the period. That is the lowest level since September 20, 2016.

Forecast

Despite efforts by the OPEC-led group including Russia to stabilize prices, the early price action suggests bullish investors aren’t happy with the final cut of 1.2 million bpd. They would have been a lot happier if the number had come in on the high end of the range at 1.4 million bpd, but at least it wasn’t as low as the 1.0 million bpd figure tossed around last week.

There is just too much uncertainty floating around to sustain a rally at this time, which suggests we’re likely to see a sideways to lower trade unless the global equity markets start to improve and the U.S. Dollar weakens with more conviction than we’ve seen over the past few weeks.

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