Overview of Oil Prices
As expected in our last week’s Oil Price Commentary “OPEC Oil Deal Is Driving Oil Prices Above $50 A Barrel This Week“, crude oil prices settled above $50/bbl last week. Both Brent crude and TWI started the week below $50/bbl, but by Thursday, both crude oil prices were above $50/bbl. Earlier last the week, oil prices were driven up by OPEC’s oil deal, which drove Brent oil price above $50/bbl on Tuesday.
Brent Crude & WTI Oil Prices
However, by midweek, oil prices were supported by a sharp decline in U.S. crude inventory. On Wednesday, the EIA reported a decline of around 3 million bbl in U.S. crude stockpiles. This decline came after another decline the week before. The continuous decline in U.S. crude inventories created a positive sentiment in the oil market that the oil market could finally be heading in the right direction. Despite this decline, traders are still in doubt that such a trend may not last for a long time, and stockpiles could start rising again anytime soon.
Adding to the bullish sentiment, on Thursday, oil prices were also supported by traders’ anticipation of a negative effect of Hurricane Matthew on the U.S. crude oil supply. On that day, oil prices reached its highest level since few months ago. Brent crude and TWI settled up around $52.60/bbl, and $50.60/bbl respectively.
However, on Friday, oil prices paired its gains on a choppy trading following the release of a less-than-expected yet not bad U.S. job growth number. The end of the week profit-taking after a long rally has also put some downward pressure on oil prices on Friday given the fact that traders started to rethink the likelihood of any deal by OPEC. Brent crude and WTI settled down below $52/bbl and $50/bbl respectively.
Last Week Data/News & This Week Oil Price Forecast
Last week’s data and news are enough to drive oil prices up again this week, but doubts about the likelihood of OPEC’s oil deal and worries over the return of U.S. crude oil production and rig count’s increases could prevent that from happening.
Crude Oil Prices Forecast
According to the EIA, U.S. crude oil production and stockpiles declined by 30,000 bbl/day and 3 million bbl respectively last week. Both of these positive market data along with what remains of the positive sentiment of OPEC’s oil deal could drive oil prices up this week leading it to reach new highs. This upward movement is highly likely especially if the EIA reported another decline in U.S. crude inventories and oil production this week.
But at the current market state, the upward movement becomes at risk more and more everyday as oil prices remain above $50/bbl. First of all, the excitement of OPEC’s oil deal is gradually losing its support to oil prices. As time goes, more issues on reaching a deal within OPEC itself could arise. Even before that happens, traders are starting to doubt the likelihood of OPEC’s oil deal. That means, for the deal to keep supporting oil prices, OPEC’s members should keep flooding the market with positive comments and assurances that they will reach a deal on November.
The other risk to the upward movement in oil prices this week and in the coming weeks comes from the fact that, as oil prices remain above $50/bbl for a long time, we will see shale oil producers ramping up their production. Not only that, U.S. rig count will also start picking up and oil production will reverse a course and start increasing just like every time oil prices reached to $50/bbl in the past few months.
Will Oil Prices Go Up This Week?
In general, the overall oil prices outlook for this week is positive but at a very high risk of negative comments from OPEC’s members and other countries involved in the oil production cut deal. Brent and WTI crude oil prices are set to go higher this week adding $1 to $2 a barrel especially if U.S. crude oil production, and stockpiles experienced another decline this week. However, if the oil market is faced with negative comments from OPEC’s members during the World Energy Conference, which starts this week in Istanbul, oil prices could dip below $50/bbl again.
Stay ahead of oil prices movements by subscribing to the Weekly Oil Price Commentary published every Monday. Click here to subscribe.
Remark: The expectation of oil prices’ direction in this commentary are based on the oil market data and news up until the time of writing this commentary. As the week starts, new data and news are reported and could influence oil prices differently. Therefore, the direction of oil prices cloud be different from what was expected here. It is important to stay updated with oil market data and events as they occur.
