Crude Oil Tumbles Over Production Cut Uncertainty

Crude oil broke more than 3 percent on Friday, as investors dumped long futures contracts on uncertainty over whether OPEC will reach a deal to curtail production. After a steady opening, prices accelerated to the downside after Saudi Arabia said it will not attend talks on Monday with non-OPEC producers to discuss the proposed supply cuts.

January WTI Crude Oil was trading at $46.50, down $1.48 or -3.07%. February Brent Crude Oil was at $47.62, down $1.33 or -2.72%. However, both contracts remained slightly higher for the week.

According to reports, Saudi Arabia told the producer group that it will not attend talks on Monday with non-OPEC producers to discuss limiting supply as it wants to focus on having consensus within the organization first.

OPEC is set to meet on Vienna on November. At that time it is expected to announce a production cut agreement. Most countries are on-board with the idea including the largest non-OPEC producing member, Russia. However, there are still issues that need to be settled with Iraq and Iran.

Iraq wants to be exempt from all cuts in output. Iran may agree to a production freeze, but not a production cut.

At the meeting, OPEC is expected to announce a targeted production cap at 32.5 million to 33 million barrels per day (bpd) from 33.64 million bpd.

Natural Gas

January Natural Gas futures posted a solid gain of 1.78% to $3.203 on Friday as the market continued to attract light buying due to the return of colder temperatures and increased heating fuel demand. The price action only suggests cold weather over the near-term, however. The current forecasts show no evidence of any lingering cold systems. Traders should also note that the market is testing a key retracement zone at $3.199 to $3.311 that could encourage selling.

Gold

February Comex Gold futures spiked lower on Friday, but managed to bounce off its low, suggesting the start of a short-covering rally. Most of the price action is being technically driven due to oversold conditions. A weaker U.S. Dollar also contributed to the technical bounce.

Other News

Volume and volatility were extremely low on Friday as most of the major players remained on the sidelines after yesterday’s Thanksgiving holiday. Both key factors should pick up next week. Some traders were able to take advantage of the slow trade to produce strong counter-trend moves. These were most evident in the currencies and the dollar markets.

U.S. Goods Trade Balance came out wider than expected at -62.0 billion, greater than the estimate of -59.2 billion and the previous -56.5 billion.

Wholesale Inventories were down 0.4%, well below the plus 0.3% estimate and the previous plus 0.2% read.

U.S. Flash Services PMI was 54.7, slightly below the 54.9 estimate.