Oil Prices Are On Course For Another Weekly Gain

U.S. West Texas Intermediate crude oil futures are putting in a mixed performance on Friday on low post-holiday volume. Earlier in the session, the U.S. futures contract fell more than 1% amid concerns about oversupply and doubts about a vaccine to end the coronavirus pandemic, but at the mid-session, the market is trading higher, putting it on course for a fourth straight week of gains ahead of an OPEC+ meeting early next week.

Vaccine Issues Encouraging Profit-Taking

In a slow news week, traders were once again focusing on a coronavirus vaccine, but this time, they appear to be booking profits after a big price jump as several scientists have sounded doubts over how robust the results of trials from AstraZeneca were.

Earlier in the week, both oil benchmarks jumped about 6% after AstraZeneca announced that its COVID-19 vaccine could be up to 90% effective, adding to successful trial results of Pfizer and Moderna Inc under development in the fight to end the worst pandemic in a century.

However, former pharmaceutical executives in the U.S. raised questions this week over the Oxford-AstraZeneca vaccine candidate. “We believe that this product will never be licensed in the U.S.,” one group of critical U.S.-based analysts wrote this week.

US Crude Stockpiles Fall Unexpectedly, Gasoline Builds:  EIA

U.S. crude oil inventories fell last week, as well as distillate stocks, while gasoline stockpiles rose sharply, the U.S. Energy Information Administration (EIA) said on Wednesday.

Crude inventories fell by 754,000 barrels in the week to November 20 to 488.7 million barrels, compared with analysts’ expectations in a Reuters poll for a 127,000-barrel rise.

Gasoline stocks rose by 2.2 million barrels in the week to 230.2 million barrels, the EIA said, more than forecasts for a 614,000-barrel rise.

Distillate stockpiles, which include diesel and heating oil, fell by 1.4 million barrels in the week to 142.6 million barrels, close to expectations for a 1.6 million-barrel drop, data showed.

Refining utilization rates rose 1.3 percentage points to 78.7% of total capacity.

OPEC+ Leaning Toward Delaying Next Year’s Planned Increase in Oil Output

An OPEC+ ministerial committee held a meeting earlier in the month designed to look at adjusting plans for oil supply cuts next year as the coronavirus pandemic continues to drive down demand.

Reuters reported that OPEC+’s Joint Technical Committee (JTC) had looked at various scenarios on altering the deal on output cuts and the impact each scenario would have on reducing OECD inventories in line with the five-year average. Since then, three sources close to the OPEC+ group have told Reuters that they were leading toward delaying next year’s planned increase in oil output.

OPEC+ was planning to raise output by 2 million barrels per day (bpd) in January – about 2% of global consumption – after record supply cuts this year. OPEC+ ministers are due to meet on Monday.

Weekly Technical Analysis

Weekly January WTI Crude Oil

Trend Indicator Analysis

The main trend is up according to the weekly swing chart. A trade through $44.59 reaffirmed the uptrend. A move through $34.04 will change the main trend to down.

The main range is $59.92 to $26.22. Its retracement zone at $42.57 to $46.43 is potential resistance. The market is expected to settle the week inside this range.

The short-term range is $26.22 to $44.59. Its retracement zone at $36.24 to $33.88 is the primary downside target. This zone stopped the selling at $34.04 the week-ending November 6. It remains a major support area.

The new minor range is $34.04 to $46.26. Its 50% level at $40.15 is potential support. Since the main trend is up, buyers are likely to come in on the first test of this level.

Weekly Technical Forecast

Based on this week’s price action, the direction of the December WTI crude oil market the week-ending December 5 should be determined by trader reaction to the 50% level at $46.53 and the Fibonacci level at $42.57.

Bullish Scenario

A sustained move over $46.43 will indicate the presence of buyers. If this move creates enough upside momentum then for an acceleration to the upside since the nearest resistance is $53.59.

Bearish Scenario

A sustained move under $42.57 will signal the presence of sellers. If this move generates enough downside momentum then look for the selling to possibly extend into the minor pivot at $40.15. This is the last potential support before the support cluster at $36.24, $34.04 and $33.88.

Short-Term Outlook

On the bullish side, OPEC and its allies are leaning toward delaying next year’s planned increase in oil output but this news has already been priced into the market as the story has been floated for about a month.

Meanwhile, Libyan output continues to rise, contributing to concerns about oversupply in the market as many people are ignoring lockdown advice and travelling.

COVID-19 cases are expected to rise sharply over the next few weeks, in my opinion, as nearly 6 million Americans took air trips from Friday to Wednesday in advance of the Thanksgiving break as they ignored advice from the Centers for Disease Control to stay home, the U.S. Transportation Security Administration said. This doesn’t bode well for gasoline demand as it is expected to slip in the coming weeks due to increased coronavirus infections.

The Fibonacci level at $46.43 is both resistance and a potential trigger point for an acceleration to the upside. The decision by OPEC+ will determine how traders react to this level.

If OPEC+ decides to delay until after April 1 then prices could soar. If OPEC and its allies choose April 1 or a shorter date then prices could break into support at $42.57.

However, keep in mind that another surge in COVID-19 cases or problems with a vaccine are likely to outweigh anything OPEC+ announces.