Oil Price Fundamental Daily Forecast – Vaccine Hopes, Stimulus Optimism Outweigh OPEC+ Disappointment

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Friday as major producers agreed on a compromise to continue some cuts to production to cope with coronavirus-hit demand even though these fell short of expectations.

Traders are saying the OPEC+ compromise was not being treated as a negative event because of the optimism surrounding the rollout of coronavirus vaccines and renewed hopes for a U.S. stimulus deal.

At 12:02 GMT, January WTI crude oil is trading $46.27, up $0.63 or +1.38%. February Brent crude oil is at $49.37, up $0.66 or +1.35%. Both markets are headed for a fifth week of gains.

OPEC+ Announces a Compromise Deal

On Thursday, OPEC and its allies, including Russia, agreed to increase output by a modest 500,000 barrels per day (bpd) from January.

The increase means OPEC+ would move to cutting production by 7.2 million bpd, or 7% of global demand from January, compared with current cuts of 7.7 million bpd.

OPEC+ had been expected to extend existing cuts until at least March, after backing down from earlier plans to boost output by 2 million bpd.

Russian Deputy Prime Minister Alexander Novak said the group would now gather every month to decide on output policies beyond January with monthly increases not exceeding 500,000 bpd.

Monthly meetings by OPEC+ will make price moves more volatile and complicate hedging by U.S. oil producers.

Vaccines May Have Influenced OPEC+’s Decision

Hopes for a speedy approval of COVID-19 vaccines have been spurring the rally in crude oil for weeks. This news helped dampen the extremely bearish outlook for demand at the end of October. In reaction to this news, several OPEC+ producers started questioning the need to keep such a tight rein on oil policy, as advocated by OPEC leader Saudi Arabia. This news may have encouraged some OPEC+ members to push for a smaller reduction in production cuts.

Stimulus Hopes Rising

Republicans in the U.S. Congress struck a more upbeat tone on Thursday during coronavirus aid talks as they pushed for a slim $500 billion measure that previously was rejected by Democrats who say more money is needed to address the raging pandemic.

Daily Forecast

Prices could remain firm throughout the session if traders continue to remain optimistic that vaccines and stimulus will increase demand expectations.

However, there is still a risk that the increased demand will get pushed further and further into 2021 as experts predict a massive surge in COVID-19 cases after the Christmas and New Year’s holidays.

Furthermore, there is always the possibility the U.S. will call for greater restrictions and lockdowns if the pandemic continues to worsen.