Oil Price Fundamental Weekly Forecast – May Start to See Profit-taking Ahead of OPEC Meeting

U.S. West Texas Intermediate and internationally-favored Brent crude oil surged last week on the notion that the OPEC-led deal to cut production would be extended beyond the March 2018 deadline. Brent crude oil posted a solid gain, breaking through the $60 a barrel barrier to trade at its highest levels since mid-2015.

December WTI Crude Oil settled at $53.90, up $2.06 or +3.97% and January Brent Crude Oil finished the week at $60.13, up $2.55 or +4.43%.

Early in the week, the markets were supported by a drop in supplies from Iraq due to the fighting between the Iraqi army and the Kurds.

Late in the week, prices were driven higher after Saudi Crown Prince Mohammad bin Salman said he backed an extension of OPEC-led supply cuts.

Gains may have been limited by lingering concerns over rising U.S. crude production.

In other news, the U.S. Energy Information Administration reported that crude inventories rose by 856,000 barrels in the week to October 20. Analysts had expected a decrease of 2.6 million barrels.

The EIA report also showed gasoline and distillate inventories both fell by more than 5 million barrels, and refinery utilization rates rose 3.3 percentage points.

On Friday, Baker Hughes reported its weekly count of oil rigs operating in U.S. oilfields ticked up by 1 rig to a total of 737.

Forecast

The price action early this week will be determined by investor reaction to Friday’s announcement of a ceasefire between Iraqi forces and the Peshmerga from the country’s autonomous northern Kurdish region. The easing of concerns should put some oil supply back on the market, wiping out some of the premium that had been boosting prices.

The price action the rest of the week will be determined by the speculators that have been driving the short-covering rally. They have been reacting to positive comments regarding an extension of the deal to curb production.

OPEC’s next meeting is on November 7 in Vienna, Austria, when they will consider extending the deal. The current price action suggests it’s a done deal so it will be interesting to see if speculators continue to buy into this date or if they begin to curtail their aggressive buying.

I think we’re more likely to see a two-sided trade this week because the news may balance out. On the bullish side, Saudi Arabia’s determination to rebalance the market, together with ongoing geopolitical tensions in the Middle East should continue to remain supportive for oil prices.

The bearish factors remain rising oil production in the U.S. and persistently high exports from the country.