Oil Firms Ahead of Algiers OPEC Meeting That May Set Stage for Q4
Fundamental Forecast for <USOIL>: Bullish
Fundamental Crude Oil Price Talking Points:
- The ONE Thing: The OPEC meeting with allies in Algiers is expected to focus on production gains as Iranian sanctions and depletion rates in Venezuela look to force the hand of OPEC. Reuters reported on Friday that the likely increase would be around 500k barrels per day.
- The correlation between WTI and Brent crude contracts have fallen to the lowest since 2014 as supply pressure in Brent regions and perceived oversupply in WTI from US E&P cause the market to diverge in favor of Brent.
- Per BHI, U.S. total rig count falls 2 to 1053; US Oil rigs fall by 1 to 866
- The technical picture for Brent has a keen focus on $80/bbl. A breakout above this level would align with the technically bullish momentum backdrop seen through Ichimoku and MACD. Such a breakout could see a new range in Brent toward $80-$90/bbl.
Crude has benefited mightily from a combination of fears surrounding supply shortages on OPEC-member depletion rates and sanctions as global economic growth continues to hum. Wednesday’s EIA Crude Oil Inventory Report was read as bullish as both gasoline and crude inventories saw a draw, which led to a sharp rise in the front-month crude oil contract.
Some traders are focusing on the divergence between WTI and Brent, which is beginning to smell like 2011 when the WTI-Brent spread blew out as the correlation between the two benchmarks fell to the lowest level since 2014 on a 120-day rolling scale. The breakdown in correlation is seen as the supply risks are tilted toward Brent whereas WTI is being by demand keeping up with shale production.
As OPEC is set to meet this weekend, traders are anticipating a likely boost in production with a possible 500k barrel per day increase per Reuters to counter the Iranian sanctions imposed by the US. The bullish outcome scenario that traders should watch for is whether OPEC and allies feel they cannot immediately cover the lost output from Iran as well as Venezuela’s depletion rates.
Leading up to the meeting, Iran has argued that an increase in production in response to their sanctions is a violation of the OPEC agreement. However, it appears the wind is blowing to favor a production increase as Russia and Saudi likely appease Trump’s request to “get prices down now!”
Brent Overtaking $80/bbl Could Lead To Higher Range of $80-$90/bbl
Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT
Once again, WTI and Brent crude has become the market everyone is discussing! Unlock our forecast here
Ichimoku has been applied and complemented by the similar MACD indicator. Both show a bullish environment that favors further upside as opposed to a bearish downside reversal. Behind the uptrend has been a favorable fundamental backdrop explained above.
Additionally, a move above $80/bbl could take crude into a new higher range between $80 and $90/bbl. However, if a more substantial boost in production than anticipated from OPEC and allies keeps a lid on Oil at $80/bbl, traders could see a move toward the recent polarity point of the January high and August low $70/bbl.
Next Week’s Data Points That May Affect Energy Markets:
The fundamental focal points for the energy market next week:
- Saturday: OPEC and its panel of technical representatives, called theJoint Technical Committee, meet in Algiers
- Sunday: OPEC, non-OPEC meet in Algiers to discuss oil market; OPECalso releases its long-term report, the World Oil Outlook
- Sunday 23:00 ET: China’s General Administration of Customs releases commodities& energy trade data for August (final), including oil, LNG
- Monday: Rio Oil & Gas conference starts, with speakers including government officials, executives of BP, Technip, ExxonMobil, among others,day 1 of 4
- Monday: Platts holds 34th Asia Pacific Petroleum Conference (APPEC) in Singapore, with officials from top traders, refiners, and state oil cos. to attend; Executives from Aramco, Indian Oil,Mercuria, BP, Shell, Trafigura, Vitol, and Gunvor due to speak, day 1 of 3
- Tuesday: The 72nd Regular Session of the UN General Assembly starts (U.S. President Donald Trump andIranian President Hassan Rouhani are set to attend)
- Tuesday 16:30 ET: API issues weekly US oil inventory report
- Wednesday 10:30 ET: EIA weekly U.S. oil inventory report
- Friday 13:00 ET: Baker-Hughes Rig Count
- Friday 15:30 ET: Release of the CFTC weekly commitments of traders report on U.S. futures, options contracts
---Written by Tyler Yell, CMT
Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as trading educational resources. Read more of Tyler’s Technical reportsvia his bio page.
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