Oil Price Fundamental Weekly Forecast – Outcome of OPEC Meeting Will Dictate Direction This Week

The direction of WTI and Brent crude oil this week is likely to be determined by the outcome of the OPEC meeting in Algiers on September 23. At this meeting, OPEC producers and other non-OPEC producers are expected to discuss how to best distribute planned increases to offset the loss of Iranian output, estimated at 1.4 million barrels a day. However, if the reports from late last week are true, this figure may rise as high as 1.9 million barrels.
James Hyerczyk
Crude Oil
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil finished higher last week with U.S. crude posting the biggest gains. Both futures contracts also challenged key technical levels on the monthly chart which indicated the longer-term uptrend was getting stronger.

The rally was primarily supported by concerns over supply due to the looming sanctions on Iran which are expected to begin in November. Also underpinning the market was another bullish U.S. government inventories report. The upside, however, was limited somewhat later in the week by expectations that increased production from Saudi Arabia and its allies would take care of any supply short-falls.

For the week, November WTI crude oil settled at $70.78, up $2.01 or +2.92% and December Brent crude oil finished at $78.24, up $0.63 or +0.81%.

Bloomberg reported last week, citing unnamed Saudi sources, that the kingdom was currently comfortable with prices above $80 per barrel, at least for short-term. Bloomberg also said that while Saudi Arabia had no desire to push prices higher than $80, it may no longer be possible to avoid it. This news helped spike prices higher.

The news raised the ire of President Trump who called on OPEC to “get prices down now!” ahead of Sunday’s meeting of major oil exporters.

At this meeting in Algeria, OPEC members were unlikely to push for an agreement to raise crude output, however, this line of thinking changed on Friday when Reuters reported, citing an unnamed source, that the 15-nation OPEC cartel and a group of producers led by Russia would be discussing a potential increase of 500,000 barrels a day.

In other news, the U.S. Energy Information Administration reported last Wednesday that U.S. crude supplies fell by 2.1 million barrels for the week-ended September 14. Analysts were looking for a fall of 3 million barrels.

Gasoline stockpiles declined by 1.7 million barrels for the week, while distillate stockpiles climbed by 800,000 barrels, according to the EIA. Traders were looking for gasoline inventories to decline by 1.6 million barrels and for distillates inventories to drop by 282,000 barrels.

On Friday, energy services firm Baker Hughes reported that U.S. energy companies cut oil rigs for a second week in three as new drilling stalled in the nation’s oil fields. Additionally, production was forecast to grow at the slowest pace in nearly two years due to pipeline constraints.

Drillers cut one oil rig in the week to September 21, bringing the total count down to 866. This is still higher than a year ago when 744 rigs were active.

Forecast

The direction of WTI and Brent crude oil this week is likely to be determined by the outcome of the OPEC meeting in Algiers on September 23. At this meeting, OPEC producers and other non-OPEC producers are expected to discuss how to best distribute planned increases to offset the loss of Iranian output, estimated at 1.4 million barrels a day. However, if the reports from late last week are true, this figure may rise as high as 1.9 million barrels.

If the output figure come in at the high end of the range then look for weakness in the market this week. However, don’t expect a change in the trend. Conditions are still fragile and the market susceptible to any supply disruption. We only expect to see a mild correction in prices.

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