Oil Price Fundamental Weekly Forecast – Bearish Factors Adding Up; Expect Volatility into OPEC+ Meeting

The negatives are beginning to add up so we could be looking at weaker prices heading into the OPEC+ meeting on December 5-6.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished lower after hitting its highest level since mid-September earlier in the week. A steep drop on Friday wiped out an entire week’s worth of gains.

Optimism over a potential U.S.-China trade deal and an extension of the production cuts by OPEC and its allies, helped generate most of the strength. Providing a little resistance was another rise in crude oil supplies.

Last week, January WTI crude oil settled at $55.17, down $2.60 or -4.50% and February Brent crude oil closed at $60.49, down $1.88 or -3.11%.

The sell-off on Friday that was responsible for the weekly loss was blamed on the resignation announcement of Iraq’s prime minister after weeks of deadly protests, as well as investors jockeying for position before the OPEC+ meeting this week.

U.S. Energy Information Administration Weekly Inventories Report

On Wednesday, the U.S. Energy Information Administration (EIA) reported a 1.6 million barrel build in U.S. crude stocks. Analysts were looking for a drop of 418,000 barrels.

The EIA also said U.S. gasoline inventories soared by 5.1 million barrels, compared with expectations for a 1.2 million-barrel gain.

Finally, according to the EIA, U.S. production hit a record high of 12.9 million barrels per day and refinery runs slowed.

Oil Drillers Reduce Number of Rigs

U.S. oil drillers reduced the number of drilling rigs for a record 12 months in a row, despite fresh production highs.

Drillers cut three oil rigs in the week to November 27, bringing the total count down to 668, the lowest since April 2017, energy services firm Baker Hughes Company said in data released two days early due to the U.S. Thanksgiving holiday on Thursday.

Weekly Forecast

The negatives are beginning to add up so we could be looking at weaker prices heading into the OPEC+ meeting on December 5-6.

Firstly, despite the recent optimism over a trade deal, doubts over the timing of such a trade deal are beginning to reemerge with prices being pressured by China’s warning to the United States on Thursday that it would take “firm countermeasures” in response to U.S. legislation backing anti-government protesters in Hong Kong.

Sellers are betting that any such move by China would further delay a preliminary agreement to end a U.S.-China trade war that has held global economic growth in check, while increasing worries over global demand growth.

Secondly, early last week, investors were confident that OPEC and its allies would agree to reduce output to support prices at its meeting. The broader producer group was widely expected to extend its 1.2 million-barrel-per-day supply cut to the middle of 2020.

However, at the end of the week, Again Capital’s John Kilduff said that hopes of a bullish outcome from the meeting are fading. NationShares president and chief investment officer Scott Nations echoed this, saying that the meeting has been thrown into turmoil following comments from Russian Energy Minister Alexander Novak.

Finally, following weeks of unrest in Iraq, Prime Minister Adel Abdul-Mahdi announced plans to resign Friday. Some traders believe an end to the country’s ongoing protests will lead to an end of threats to oil disruption, which is bearish for prices.

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