Oil Price Fundamental Daily Forecast – Subdued Trade Ahead of OPEC+ Production Decision on Sunday

U.S. West Texas Intermediate crude oil futures are inching higher on Friday in a lackluster trade ahead of an OPEC+ meeting on Sunday and a European Union ban on Russian crude oil that starts on Monday.

The price action suggests investor indecision and impending volatility. In other words, we may not see any meaningful movement until traders get some clarity on OPEC+ production levels and how the ban is going to work.

At 14:31 GMT, January WTI crude oil futures are trading $81.54, up $0.32 or +0.39% and February Brent crude oil is at $87.07, up $0.19 or +0.22%. The United States Oil Fund ETF (USO) is trading $69.40, down $1.05 or -1.49%.

Crude Faces Downside Risk if OPEC+ Fails to Deliver Production Cuts

OPEC+ is widely expected to stick to its latest target of reducing oil production by 2 million barrels per day (bpd) when it meets on Sunday, but some analysts believe that crude prices could fall if the group does not make further cuts, according to Reuters.

OPEC and its allies , which includes Russia, has switched its planned in-person meeting in Vienna on Dec. 4 to a virtual one, which sources in the group say signals the likelihood of it leaving policy unchanged.

Traders are saying the group will take into consideration the Russian oil-price cap and the easing of COVID restrictions before they make their decision on Dec. 4.

Some analysts, however, are not ruling out a surprise, and warn that with the current oversupply in the market, OPEC+ risks a collapse in the oil price if it doesn’t curb its output targets further at the meeting. Reuters reported.

“A further cut in production cannot…be ruled out,” PVM Oil analyst Stephen Brennock said. “Failure to do so risks sparking another selling frenzy,” he added, without saying how low he thought prices could go.

Russian Oil Output Could Drop Due to European Union Ban

Russian oil output could fall by 500,000 to 1 million bpd early in 2023 due to the European Union ban on seaborne imports from Monday, two sources at major Russian producers said, Reuters reported.

EU governments tentatively agreed on a $60 a barrel price cap on Russian seaborne oil with an adjustment mechanism to keep the cap at 5% below the market price, according to diplomats and a document seen by Reuters.

Short-Term Outlook

Friday’s price action suggests traders are keeping their powder dry until Monday when they will have the OPEC+ decision under their belts and have had a chance to digest the potential impact of the EU Russian ban on oil prices.

Meanwhile, China’s decision to ease its COVID-19 quarantine protocols could be sending a bullish signal.

The wildcard remains the OPEC+ decision, in my opinion. Prices could spike higher if they surprise with fresh output cuts. However, crude prices could fall hard if they leave production at current levels. Compounding the problem will be the uncertainty surrounding the Russian ban and China COVID restrictions. It may take weeks to figure out the impact of the ban, meanwhile, China may change its mind about easing COVID restrictions.

Brace for heightened volatility at the start of the new week.