Oil Price Fundamental Daily Forecast – White House Struggling to Convince OPEC+ to Raise Production

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed early Tuesday as the bulls took a breather following a test of a multi-year high the previous session. The markets are up nearly two months since their last major bottom was posted on August 23.

Despite the early setback, the markets continue to be well-supported by a rebound in global demand that is contributing to energy shortages in major economies.

At 06:54 GMT, December WTI crude oil futures are trading $79.84, down $0.08 or -0.10%. This is down from Monday’s high of $80.31. December Brent crude oil is at $83.63, down $0.02 or -0.02%. Monday’s high was $84.60.

Monday Recap:  Crude Hits Multi-Year High on Surging Demand

WTI and Brent crude oil prices jumped on Monday to the highest levels in years, fueled by rebounding global demand that has contributed to power and gas shortages in key economies like China.

The pace of economic recovery from the pandemic has supercharged energy demand at a time when oil production has slowed due to cuts in producing countries during the pandemic, the focus on dividends from oil companies and pressure on governments to switch to cleaner energy, according to Reuters.

White House Calls for Oil-Producing Countries to ‘Do More’ to Support Global Economic Recovery

A White House official said on Monday the government stands by its calls for oil producing countries to “do more” to support the global economic recovery.

The official said the administration was closely monitoring the cost of oil and gasoline and “using every tool at our disposal to address anti-competitive practices in U.S. and global energy markets to ensure reliable and stable energy markets.’

It has raised the concern at a senior level with several members of the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, according to the official.

Daily Forecast

Despite the early mixed trade on Tuesday, crude oil markets remain well-supported so we expect any substantial weakness to be bought aggressively by hedge funds and other major speculators.

We expect the decision by some power generators to switch from gas to oil to be the bullish factor that could drive prices to nearly triple-digits by the end of the year. Analysts have estimated that switching from natural gas to oil could boost crude demand by anywhere from 250,000 to 750,000 barrels per day.

Meanwhile, we think the White House is going to have a hard time convincing OPEC+, especially Saudi Arabia, to raise production because of its concern that demand and prices could weaken.

The other big reason is money. After seeing their income slide during the pandemic-induced demand and price collapse in 2020, the OPEC+ oil producers’ alliance led by Russia and top exporter Saudi Arabia are enjoying the boost in revenues, three OPEC+ sources told Reuters.

“Based on past lessons, OPEC is more cautious because any hasty decision can lead to a sharp drop in oil prices,” said an OPEC+ source, explaining the reasons not to increase output further.

“So the political pressure of the United States and others has not yet been effective in changing this strategy.”