Oil Prices On Track For A Third Weekly Gain

U.S. West Texas Intermediate crude oil futures are trading flat but remained on track to record their third consecutive weekly rise. The catalysts behind the gains were speculation that OPEC and its allies will keep production in check, and optimism over successful COVID-19 vaccine trials. Helping to keep a lid on gains was the spread of the virus.

OPEC+ Holds Ministerial Committee Meeting

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

The group known as OPEC+, comprising the Organization of the Petroleum Exporting Countries, Russia and others, are now due to wind down cuts that now stand at 7.7 million barrels per day (bpd) to 5.7 million bpd from January.

Winding down production cuts at a time when demand is falling and production from Libya is rising, raises the chances of a supply glut, which has prompted OPEC+ to consider pushing back any increase in supply by three or six months.

Reuters reported that OPEC+'s Joint Technical Committee (JTC) has 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.

• Scenario A: The base case adopts modified data from the November 2020 OPEC monthly report, in particular on oil demand.
• Scenario B: This alternative scenario assumes higher contractions for world oil demand and non-OPEC supply in 2020, and lower growth for demand and non-OPEC supply in 2021.
• Scenario C: This assumes extending current crude output cuts, using the base case framework, to the end of the second quarter 2021.
• Scenario D: This assumes extending current crude output cuts, using the base case framework, to the end of the second quarter 2021.

US Energy Information Administration Weekly Inventories Report

U.S. crude oil and gasoline inventories rose last week, while distillate stockpiles fell sharply even as refinery utilization ramped up, the Energy Information Administration said on Wednesday.

Crude inventories rose by 768,000 barrels in the week to November 13 to 489.5 million barrels, compared with analyst expectations in a Reuters poll for a 1.7 million-barrel rise.

The build was due in part to a bump-up in production to 10.9 million barrels per day from 10.5 million bpd the week earlier. Weekly production figures are volatile, and this week's move came as offshore facilities restarted after the latest hurricane to hit the U.S. Gulf Coast.

Crude stocks at the Cushing, Oklahoma, delivery hub for U.S. futures rose 1.2 million barrels in the week to 61.6 million barrels, their highest since May, the EIA said.

Distillate stockpiles, which include diesel and heating oil, fell by 5.2 million barrels in the week to 144 million barrels, far exceeding expectations for a 1.5 million-barrel drop, the EIA data showed.

U.S. gasoline stocks rose by 2.6 million barrels, compared with expectations for an 87,000-barrel rise.

Refinery crude runs rose by 394,000 bpd last week, and refinery utilization rates climbed by 2.9 percentage points in the week, the EIA said.

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 will reaffirm the uptrend, while 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 short-term range is $26.22 to $44.59. Its retracement zone at $35.41 to $33.24 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 $43.33. Its 50% level at $38.69 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 November 27 should be determined by trader reaction to the minor 50% level at $42.57.

Bullish Scenario

A sustained move over $42.57 will indicate the presence of buyers. If this move creates enough upside momentum then look for a retest of $44.59, followed closely by $46.63. This is a potential trigger point for an acceleration to the upside.

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 $38.69. This is the last potential support before the support cluster at $35.41, $34.04, and $33.24.

Short-Term Outlook

Prices have been mostly rangebound this week as the euphoria over the announcement of successful vaccine trials seems to be offsetting concerns over the surge in coronavirus cases.

This shifts the focus on the widely expected move by OPEC and its allies to curtail its plans to postpone a cut in production. Speculators are pricing in the move, which is why prices have been underpinned this week. Generally speaking, any move that leads to a reduction in supply is considered supportive.

We could start seeing a short-term upside bias develop as more pharmaceutical companies announce successful vaccine results, and if the government approves the distribution of their vaccines.

However, the gains could be a slow grind if largely populated states like California, Illinois, and New York start to impose stricter restrictions that could cause renewed demand destruction.

The price action suggests traders are waiting to see if the U.S. Thanksgiving holiday turns into a major super spreader event and if OPEC+ decides to maintain current production cut levels.

The direction of the January WTI crude oil market next week will be determined by trader reaction to the main 50% level at $42.57.