trade spot oil ironfx market analysis

The star event of the Oil market takes place in Vienna Thursday the 6th of December, when the OPEC plus group will be meeting in order to decide future steps and actions.

The head producer of the group, Saudi Arabia, has made it clear that Oil production cuts may need to be applied from January.

In previous months the Saudi Kingdom indicated it was interested in a higher price range reaching above $60 per barrel and so a reduction in supply could be the way towards that desirable price.

A crucial point for the upcoming meeting could be if the Saudis and fellow producer Russia will be agreeing or not, on a decision to cut production.

During 2018 the Saudis and Russians strengthened their relationships by cutting production, but also creating a deal solely between them, to reach certain targets involving their activities within the oil industry.

Now however, we are seeing some resentment from Russia’s side as the Russian Energy minister has stated in the past that they are not sure if a production cut is desirable for the time being.

Even though Saudi and United Arab Emirates energy ministers, Khalid al-Falih and Suhail bin Mohammed al-Mazroui, agreed in the previous days that a rebalancing in global oil glut is needed, for this to take place, all producers must be in favor and Russia’s position would be key in reaching such a decision.

Another development on the OPEC front was Qatar’s unexpected decision to withdraw from the group, just days before the OPEC meeting in Vienna.

Reports make reference to the frustration of small producers towards the OPEC group and the decisions made by the largest producers like Saudi Arabia.

It is indicative that OPECs current operation may not be in line with Qatar’s interests.

According to an Iranian official, who commented on the news, supply cuts should be made from producers that had increased output pointing at the kingdom, which in our opinion is a very accurate recommendation.

It could be most probable that, Qatar has more to gain proceeding with solo Oil activities instead of being part of OPEC.

In fact, according to Reuters, Saad al-Kaabi, Qatar’s energy minister said on Monday his country has reviewed ways to increase its activities globally and has a long term strategic plan in place.

In the upcoming meeting, OPEC may have to make changes or re consider the way minor producers are dealt with, in order to avoid further departures and improve relationships.

Furthermore, from the Middle East, during the previous weekend it was confirmed through US officials that Iran tested some new medium range missiles which carry significant danger for the countries around Persia but also for Europe.

Iranian officials said the missile tests will continue as they are used for defensive purposes.

However, in the following weeks we may see the US taking stronger measures against Iran in an attempt to control the situation.

On other news, the Xi-Trump deal at the G20 meeting which decreased the risk of tariffs, could possibly help resume Oil transactions between China and the US, after a long postponement due to the dispute they had.

Interest of Chinese traders in US oil supply could increase and more specifically Chinese oil trader Unipec could restart U.S. crude shipments to China by March when the 90 day cease period is over.

With Oil prices at yearly lows and US Oil production at very high levels, it makes absolute economic sense for such interest to be in play.

Let’s not forget, China bought on average 325,000 bpd of U.S. crude counting only until September of 2018, before imports fell to zero in October, and so this could be a restart of a procedure, only on better terms.

As a conclusion, we would like to stress some vital points regarding the upcoming meeting.

If the OPEC plus group, decides to cut production, the next crucial question is by how much? Analysts are making scenarios of a 1.2 to 1.5 mbp reduction but the reliability of these forecasts is questionable.

On what basis are these forecasts made and when do these production cuts come into play? The OPEC meeting will provide some light regarding the Oil industry’s gloomy future.

WTI Crude Oil 1 hour chart

During Monday’s opening, oil prices jumped higher and stabilized nearby the 53.45 (R1) resistance level.

Oil prices were pressured yesterday by a weekly report from the American Petroleum Institute (API).

The release of the weekly reading confirmed U.S. crude inventories increased by 5.4 million barrels in the previous week, signaling that U.S. oil markets are in a rising glut.

At the moment the commodity is trading between the 53.45 (R1) resistance level and the 50.00 (S1) support level, in a clear sideways motion.

In a bullish scenario Crude Oil could breach the 53.45 (R1) resistance level and aim higher for the 55.30 (R2) resistance barrier.

Please be advised that a supposed decision in the OPEC meeting, to cut Oil production at higher levels than anticipated, we may view a breach of all our noted resistance levels.

In the opposite scenario, a bearish momentum could force the commodity below the 50.00 (S1) support level aiming for the 48.00 (S2).

A drop even lower could lead to the 46.15 (S3) support barrier.

EIA crude oil inventories figure data is expected later on today