Oil Price Fundamental Weekly Forecast – US-China Trade Deal, Expected Production Cuts Potentially Bullish Developments

U.S. West Texas Intermediate and international Brent crude oil futures finished mixed last week with U.S. crude posting a slight gain, while Brent weakened. Despite hitting its lowest level in over a year earlier in the week, WTI showed signs of stabilizing. This is perhaps an early indication that the worst of the selling may be over. Sentiment was primarily influenced by expectations of production cuts by OPEC and its allies.

Last week, January WTI crude oil settled at $50.93, up $0.51 or +1.01% and January Brent crude oil closed at $58.71, down $0.09 or -0.15%.

Potentially Bullish Chart Pattern

U.S. West Texas Intermediate crude oil futures posted a potentially bullish technical closing price reversal bottom on the weekly chart. Helping to form the chart pattern was Thursday’s rapid reversal to the upside on the daily chart. This move was fueled after industry sources said Russia had accepted the need to cut production, together with OPEC ahead of its meeting in Vienna on December 6-7.

At the start of trading last week, crude oil was in a position to post one of its biggest one-month declines in November since the worst of the financial crisis in 2008. Primarily driving the price action last month was increasing supply by the United States and Saudi Arabia.

Russia Ready to Reduce Production

After U.S. crude oil fell below $50 for the first time in over a year, the news hit that Russia would consider joining OPEC and other producers to cut output. This triggered the technical reversal in the markets.

The reaction by traders to the news about Russia was primarily driven by short-covering, but nonetheless, it is a good sign that the buying may be greater than the selling at current price levels. Furthermore, it also puts the markets in a position to close higher for the week, which would also be a positive development.

The Russian news also seemed to catch investors by surprise because on Wednesday, Russian President Vladimir Putin said he was in touch with OPEC and ready to continue cooperation on supply if needed, but he was satisfied with an oil price of $60.

Sentiment shifted on a report that the Russian Energy Ministry held a meeting with heads of domestic oil producers on Tuesday, before a gathering in Vienna of OPEC and its allies on December 6-7.

“The idea at the meeting was that Russia needs to reduce. The key question is how quickly and by how much,” said one source familiar with the talks between Russian oil firms and the ministry.

Ahead of next week’s OPEC meeting, the market is looking for the cartel and its allies to reduce production by 1 million barrels per day.

Forecast

The news from over the week-end could lead to stronger crude oil markets this week.

Firstly, President Vladimir Putin said Saturday (December 1) that Russia and OPEC de facto leader Saudi Arabia had agreed to renew a pact on oil production cuts. Following talks at a G20 summit with Saudi Crown Prince Mohammed bin Salman, Putin said the world’s two biggest exporters of crude “have agreed to extend our agreement.”

“We are going to work together with Saudi Arabia,” Putin said in Buenos Aires, ahead of the Vienna talks.

“We are going to survey together the market situation with Saudi Arabia and respond to it operationally,” he said.

Secondly, “President Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10 percent rate, and not raise it to 25 percent at this time,” the statement read.

“Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent,” the statement added.

In the meantime, “China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries. China has agreed to start purchasing agricultural product from our farmers immediately,” the White House said.

The deal between the United States and China should stabilize the financial markets, which should help underpin crude prices.