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Crude Oil Analysis: Oil Bounces on OPEC Verbal Intervention, However, Oil Glut is Coming

Crude Oil Analysis: Oil Bounces on OPEC Verbal Intervention, However, Oil Glut is Coming

2018-11-14 11:00:00
Justin McQueen, Analyst
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Oil Price Analysis and News

  • Oil Glut is Coming
  • OPEC’s Verbal Intervention

For a more in-depth analysis on Oil Prices, check out the Q4 Forecast for Oil

Oil Glut is Coming

Oil prices have extended its record losing run, having dropped for a 12th consecutive session with yesterday seeing the biggest price decline (Over 7%) since 2014. While I mentioned in yesterday’s report, several reasons behind the price decline. The persistent has also been linked to the growing concerns and warnings from the IEA and OPEC over a supply glut, heading into 2019.

What has been made apparent by OPEC and the IEA is that oil demand growth is slowing, while oil supply, most notably from the US is rising to record levels at a rapid rate. This morning’s IEA report implied that a there will be a stock build of 0.7mbpd, which is expected to increase to 2mbpd in the first half of 2019. Consequently, this has dampened the outlook in the medium term for oil prices.

OPEC’s Verbal Intervention

Following yesterday’s price declines, this morning has seen a fresh wave of OPEC source reports, which have suggested that the cartel is looking at potentially delivering a 1.4mbpd oil output cut for 2019, in order to avoid an oil supply surplus that would pressure prices (Decision likely to be taken at the December 6th OPEC meeting). This in turn has offered a bounce for oil prices with Brent crude jumping 1.4%, potentially establishing a near term bottom. However, as has been the case recently, the talk of potential supply cuts has been quickly criticized by President Trump.

Alongside this, much depends on not only OPEC’s actions but also Russia and the US, who are both producing at record levels, particularly as demand is seen dropping for OPEC oil. Consequently, this implies that a production cut may do little to restore prices if Russian and US production continues to pump at record levels, while demand also falters.

HOW TO TRADE OIL MARKETS

OIL PRICE CHART: Daily Time-Frame (Mar-Nov 2018)

Crude Oil Analysis: Oil Bounces on OPEC Verbal Intervention, However, Oil Glut is Coming

Chart by IG

IG CLIENT SENTIMENT Bearish Oil

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bearish contrarian trading bias.

--- Written by Justin McQueen, Market Analyst

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

Follow Justin on Twitter @JMcQueenFX

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