Oil Prices Forecast: Futures Rally as OPEC+ Weighs Deeper Supply Cuts

Highlights

• OPEC+ mulls intensifying supply cuts.
• Brent and WTI prices rise significantly.
• Goldman Sachs foresees prolonged OPEC+ cuts.

Rising Oil Prices

Oil futures are rebounding on Monday, continuing the upward trajectory from Friday. This rise is primarily attributed to the anticipation of OPEC+ potentially intensifying supply cuts. The measure aims to stabilize prices which have experienced a four-week decline, partly due to the reduced concerns over Middle East supply disruptions amidst the ongoing Israel-Hamas conflict.

Current Market Position

As of 06:53 GMT, January Brent crude futures stood at $81.33, marking a $0.72 increase, while January West Texas Intermediate (WTI) crude oil reached $76.72, up by $0.68. This increase follows a 4% hike on Friday, spurred by reports from OPEC+ sources indicating possible additional supply cuts in their November 26 meeting.

Overcoming Recent Tumble

Since late September, oil prices have plummeted nearly 20%, and the prompt inter-month spreads for Brent and WTI have shifted into contango, indicating a well-supplied market. Goldman Sachs analysts highlight the possibility of deeper cuts by OPEC+, considering the current market trends, including speculative positioning, time-spreads, and inventory levels.

Forecasts and Potential Impact

Goldman Sachs predicts the current production cuts by OPEC+ to remain until 2024. They also anticipate the extension of Saudi Arabia’s unilateral cut of 1 million barrels per day through the second quarter of the next year.

WTI prices could approach $80 a barrel if OPEC+ confirms deeper cuts. However, a fall below $72 could prompt the U.S. to replenish its Strategic Petroleum Reserve, potentially impacting prices.

Global Factors Influencing the Market

The U.S. Dollar’s decline to a two-month low has further implications for the oil market, as a weaker dollar typically boosts demand for dollar-denominated commodities like crude oil.

Additionally, geopolitical factors, including the recent sanctions on Russian crude oil trade and the evolving situation in the Middle East, coupled with the increase in U.S. oil and gas rigs, as reported by Baker Hughes, are key elements shaping the near-term outlook of the oil market.

Short-Term Forecast

The current market conditions, alongside the anticipated OPEC+ meeting outcomes, suggest a bullish short-term outlook for oil prices. However, this forecast remains contingent on the evolving geopolitical landscape and the dynamic interplay of supply and demand in the global oil market.

Technical Analysis

n analyzing the Light Crude Oil Futures market, the current daily price of $76.68 shows a slight increase from the previous close of $76.04.

This price is positioned below the 50-day moving average of $84.63, suggesting a bearish short-term trend but is slightly below the 200-day moving average of $78.14, indicating a potential shift towards a neutral or bearish longer-term trend.

The proximity of the current price to the minor resistance level of $77.43 and main resistance at $82.68 also suggests potential upward resistance challenges. Conversely, the main support at $66.85 and minor support at $72.48 provide downside protection.

Overall, the market sentiment appears cautiously bearish, as the price is struggling to break above key resistance levels and remains below significant moving averages. However, sentiment could shift to bullish if the 200-day moving average is overtaken with conviction.