Oil Price Fundamental Daily Forecast – WTI Could Plunge to $40 if OPEC+ Decision Disappoints

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower, while posting an inside range as traders await OPEC+’s decision on output cuts. The price action suggests investor indecision and impending volatility.

At 11:35 GMT, January WTI crude oil futures are trading $44.98, down $0.30 or -0.66% and February Brent crude oil is at $47.97, down $0.28 or -0.58%.

OPEC+ Meeting Update

OPEC and its allies including Russia, known as OPEC+, are resuming discussions on Thursday to agree on policies for 2021 after earlier talks produced no compromise on how to tackle weak oil demand amid a new coronavirus wave.

Two OPEC+ sources told Reuters on Thursday the group was leaning towards an oil cuts rollover with a gradual increasing in output over the coming months.

OPEC+ had been widely expected to roll over oil cuts of 7.7 million barrels per day, or 8 percent of global supplies, at least until March 2021.

US Energy Information Administration Weekly Inventories Report

In the United States, crude stockpiles fell last week, while gasoline and distillate inventories rose sharply as refiners slowed production amid weakening demand, the Energy Information Administration (EIA) said on Wednesday.

Crude oil stocks fell by 679,000 barrels in the week to November 27, less than the 2.4 million-barrel decline forecast in a Reuters poll of analysts.

Gasoline stocks increased by 3.5 million barrels, while distillate inventories were up by 3.2 million barrels.

Daily Forecast

The early price action suggests traders are expecting disappointment from OPEC+. Prices could weaken if OPEC and its allies reduce the cuts less than expected, but losses could be limited if the rollover of cuts extends beyond March 2021.

The most bearish scenario would be a reduction of cuts less than expected and a shorter extension. This could take about $5.00 off of a price of a barrel of oil over the short-run.

For weeks, traders had been anticipating OPEC+ to roll over oil cuts of 7.7 million barrels per day until at least March 2021. This outlook was based on the surge in coronavirus cases in the U.S. and Europe, which was expected to have a negative effect on demand.

However, over the past few weeks the outlook on demand has changed to somewhat more favorable with the advent of the COVID-19 vaccines. This is leading some producers to question the need to tighten oil policy, which is supported by OPEC leader Saudi Arabia.