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Will We See $60 Oil By Christmas?

OPEC

For the first 11 months of the year, OPEC talked oil prices up, but by December it became clear that oil prices were not going to rise higher on mere promises, and so OPEC announced a deal to cut production in their Algiers meeting on November 30. Crude oil promptly responded by rallying 12% since the announcement of the deal.

Adding to the OPEC production cut of 1.2 million barrels a day, non-OPEC nations verbally agreed to pitch in, proposing a cut of 600,000 bpd. The total reduction achieved on paper was 1.8 million barrels a day.

However, the $52-a-barrel mark for WTI has become an important level. Once it hits $52, the market starts worrying about the fundamentals. This time, it is no different.

OPEC, while agreeing to cut production, has in the past shown questionable commitments to its agreements, which puts a question mark on the implementation of the agreed production cut.

In November, as the meeting was underway for solidifying the details of the production cut, OPEC members back home were busy pumping oil at record levels, reaching a record output of 34.19 million bpd. Similarly, Russia, which has been vocal in support of the production freeze also increased production to 11.21 million bpd, nearly a 30-year high.

Related: OPEC Cheating Will Cap Oil At $52

Second, Saudi Arabia, which has to do most of the production cutting, has cut its January price for the Arab Light grade for Asian customers by $1.20 versus December, reports CNBC. This shows that Saudi Arabia is worried about its market share, and cutting production is going to make it more difficult to retain its market share.

So when it comes to implementation, big question marks remain.

"Adherence to assigned OPEC quotas is apt to be limited and enforcement of such nearly impossible," Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note, reports CNBC.

The U.S. shale oil producers are also a serious threat. They have added 161 oil rigs in 24 of the past 27 weeks, taking the count to 477, highest since January. OPEC will not want to unleash the beast once again, which is now leaner and more competitive than ever.

OPEC is not keen on giving the U.S. shale oil producers an opportunity to increase oil production and thereby increase their market share, exporting to new and existing markets, while OPEC is busy cutting production.

RBN Energy President Rusty Braziel said: “the sweet spot for OPEC is to have crude prices between $55 and $58 a barrel. They want the extra money, but do not want to create the economics to have the U.S. increase production by 100,000 barrels a day,” as quoted by CNBC.

Related: Venezuela’s Maduro Praises The OPEC Deal, But How Good Is It Really?

With its current deal, OPEC ensured only that there is a floor under oil prices, instead of aiming for higher oil prices closer to $60 a barrel.

What does the crude oil chart forecast?


(Click to enlarge)

Crude oil has made a nice ascending triangle pattern. If the price breaks out of the $52 levels and sustains the breakout, it gives an upside pattern target of $67. However, the markets have rejected the levels above $52 on December 5, but we should see one more attempt at a breakout above the highs.

A breakout may see the oil rally to $54 a barrel, where it should again find some resistance. $60 in 2016 looks unlikely.

By Rakesh Upadyay for Oilprice.com

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  • John Scior on December 08 2016 said:
    Did I not read a similar article by Gregory Brew on Oct 3 rd ??? Well, Krampus did not arrive Dec 5th for the oil producers. Predictions for the future, more oil production from non-OPEC producers leads to a lower price point as overflowing supply depos and contango ships are filled to the brim with nowhere to sell their wares. As this price goes downward again, OPECs's next meeting- more production cuts while pumping even more record amounts of oil and proposing more non-OPEC nations limit Their production. No one adheres to the agreement, meanwhile on the same bat channel and at the same bat time, Lockheed Martin successfully is "inspired" to produce an inertial electrostatic confinement fusion device producing net electrical production to feed into the grid. Thusly, ushering the age of electric powered cars and everything else and ending the age of fossil fuels. The ice caps freeze, plants begin to die from record cold winds blowing from arctic and antarctic winters and people die of starvation from crop failures. The villagers gather their torches and pitchforks and chant"Die AL Gore !!You've killed us all !! " Exxon Mobil and several of the other major oil companies merge with several fast food outlets and find they have a new market for their oil- Humans !!! Just a tiny tad bit of a tweek and walah crude to hamburgers just add ketchup. Hope you readers enjoy a little humor for the holidays. Stay Tuned Commishioner Gordon is about to signal an end of the Era by lighting the bat signal with whale oil.
  • Ty Taylor on December 10 2016 said:
    Ha, thanks John, I needed that!

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