Oil Price Fundamental Daily Forecast – Traders Watching OPEC Abu Dhabi Meeting

Oil prices could get a boost to nine-week highs early this week due to the strong U.S. jobs report and another, although slight drop, in U.S. drilling activity.  However, gains could be limited because of rising production from OPEC.

On Friday, crude oil was supported by the surprisingly strong U.S. Non-Farm Payrolls report. Investors reacted as if this indicates increased future demand. They believe that with more people working, demand for gasoline may actually increase, for example. Or that this will lead to increased manufacturing which would in turn increase demand for other fuels.

Also supporting the market is a small drop in the number of oil rigs operating in the U.S. According to Baker Hughes, U.S. drillers cut one oil rig in the week to August 4, bringing the total count down to 765.

On the negative side, although the rig count dropped, U.S. oil production hit 9.43 million bpd, the highest level since August 2015. Additionally, OPEC’s crude oil exports in July rose to a record high of 26.11 million bpd, most of which came from Nigeria, according to a report by Thompson Reuters Oil Research last week.

The data suggests the market’s upside is limited unless the hedge funds decide to buy strength since they seem to be the one’s supporting and driving this market higher. If they decide to refrain from buying strength then the market could become rangebound.

In addition to the traditional fundamentals, the tone of the market could be set early this week when officials from an OPEC and non-OPEC technical committee meet in Abu Dhabi on August 7-8 to discuss ways to boost compliance with their supply reduction agreement.

Top producers Saudi Arabia and Russia have signaled they are ready to get tough with oil producers who are still pumping more than they promised, but it remains to be seen how they will back their rhetoric.

If the Saudi’s and Russians impose some tough rules on their counterparts then we could see another surge in crude oil prices. If they fail to gain control of the growing output from Libya and Nigeria, for example, then prices could weaken.