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Fundamental Forecast for Crude Oil Price: Neutral

Crude Oil Analysis and Talking Points:

  • OPEC Agree Production Hike of 1mln bpd
  • Global Trade War Tensions Keeps a Lid on Further Gains

OPEC Agree on Production Hike

OPECagreed to increase output by 1mln bpd to reduce 'over compliance' with the current output agreement. Subsequently, WTI and Brent crude futures rose with the latter briefly above $75/bbl, given that markets had feared that OPEC would agree a larger production, while the 1mln bpd increase will likely represent a real increase of 600-700k bpd, which had been largely priced in. Alongside this, the increase in output will likely be easily absorbed by the market and is not going to tip the oil balance into negative territory, which could allow for oil prices to grind higher.

However, what the deal does is effectively reduces a large upside risk to prices related to supply shocks (i.e. falling output from Iran and Venezuela) with OPEC now setting a mechanism which opens the way for other countries to increase production correspondingly.

Escalating Trade Tensions Dents ‘Risk On’ Sentiment

Rising trade tensions between the US and China continues to remain a prominent theme with neither side showing any signs of backing down. Subsequently, the prospect of a full-blown trade war will likely dent risk on sentiment, which in turn will likely keep a lid on further gains for crude prices. On Friday, President Trump threatened to slap 20% tariffs on the EUs auto sector, consequently weighing on sentiment. Focus will be on how the EU responds.

BRENT CRUDE PRICE CHART: DAILY TIMEFRAME (February 2018-June 2018)

Crude Oil Forecast: Rising Trade War Tensions to Keep a Lid on Oil Price Gains

Chart by IG

A cluster of DMAs (20, 55) from $75.40-85 will initial targets for oil bulls on the topside, before a potential test of the 23.6% Fibonacci retracement of the $61.67-80.49 rise at $76.05. Additionally, the bullish bias on the RSI indicators suggests that there is further scope for a grind higher. Brent also remains supported at the June lows ($72.24), while the rising trendline from June 2017 remains prominent.

OIL TRADING RESOURCES:

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX