Oil Price Fundamental Weekly Forecast – Price Action Suggests Buyers Betting Big on Trade Deal

Given that traders ignored another build in U.S. inventories and reports predicting lower demand and higher supply, the U.S.-China trade deal is probably all crude oil traders care about at this time.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil finished higher after posting a volatile two-sided trade throughout the week. Demand concerns pushed prices lower twice last week, but each time, buyers were waiting, triggering strong rallies that drove U.S. crude to its highest level since September 23 and Brent to levels not seen since September 17.

Last week, January WTI crude oil futures settled at $57.83, up $0.57 or +1.00% and January Brent crude oil closed at $63.30, up $0.79 or +1.25.

Demand Worries and Deeper OPEC+ Cuts

Prices actually rose after OPEC said it expected demand for its oil to fall in 2020. This is because the forecasts for lower demand raised the chances of deeper production cuts by OPEC and its allies when they meets on December 5-6.

OPEC said demand for its crude would average 29.58 million barrels per day next year, 1.12 million bpd less than in 2019. That points to a 2020 surplus of about 70,000 bpd, which is less than indicated in previous reports.

OPEC+ Faces ‘Major Challenge’ from Competitors Surging Output:  IEA

The IEA said on Friday, OPEC and its friends face stiffening competition in 2020, adding urgency to the oil producer group’s policy, according to Reuters.

“The OPEC+ countries face a major challenge in 2020 as demand for their crude is expected to fall sharply,” the Paris-based agency said in a monthly report.

The IEA estimated non-OPEC supply growth would surge to 2.3 million barrels per day (bpd) next year compared to 1.8 million bpd in 2019, citing production from the United States, Brazil, Norway and Guyana.

“The hefty supply cushion that is likely to build up during the first half of next year will offer cold comfort to OPEC+ ministers gathering in Vienna at the start of next month,” it added.

Traders decided not to focus on this report because OPEC and its allies could take care of the surplus by cutting output. Furthermore, positive developments on Friday over a U.S.-China trade deal kept the bearish news from taking ahold of the trade.

Other News

U.S. energy firms last week reduced the number of oil rigs operating for a fourth week in a row, cutting 10 oil rigs in the week to November 15, energy services firm Baker Hughes Co said on Friday. The total count is now 674, the lowest since April 2017.

Weekly Forecast

At the end of the week, crude oil traders were feeling optimistic enough over a possible trade deal to erase earlier losses and drive prices to their weekly highs.

Helping to fuel the turnaround in the market were comments from a high-ranking U.S. official. U.S. Commerce Secretary Wilbur Ross said in an interview on Fox Business Network Friday that there was a very high probability the United States would reach a final agreement on a phase one trade deal with China.

“We’re down to the last details now,” Ross said.

This news is expected to carry over into Monday’s trade so we’re looking for a firm opening. The tone of the market this week is likely to be dictated by headlines regarding the trade deal and any news about the possibility of deeper rate cuts by OPEC+.

Furthermore, there was a potentially bullish development over the week-end. According to Chinese state media, Chinese Vice Premier Liu He spoke with Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer about a phase-one trade deal in a phone call Saturday morning.

The two sides had “constructive discussions” about “each other’s core concerns” and agreed to remain in close contact, Xinhua reported. The call came at the request of Mnuchin and Lighthizer, according to Xinhua.

Given that traders ignored another build in U.S. inventories and reports predicting lower demand and higher supply, the U.S.-China trade deal is probably all crude oil traders care about at this time.

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