Oil Prices Forecast: Futures Gain as Saudi Arabia, Russia Extend Output Cut Commitments

Highlights

• Oil up as Saudis, Russians extend cuts
• U.S. sanctions may tighten on Iranian oil
• Short-term outlook cautiously optimistic

Oil Market Reacts to Output Cuts

Oil prices saw a modest increase on Monday amid pledges from major exporters to maintain significant production cuts, setting a scene of tighter supply. Investors also braced for potentially intensified U.S. sanctions on Iranian exports.

Saudi and Russian Commitments

Brent crude futures experienced a lift of 0.59% to $85.39 a barrel, with U.S. West Texas Intermediate (WTI) following closely at a 0.75% rise to $81.11 a barrel. The upward trend came after Saudi Arabia’s confirmation of sustaining an additional voluntary cut, trimming 1 million barrels per day to cap their output at 9 million bpd. Russia mirrored this stance, upholding a 300,000 bpd cut from its exports.

Market Surplus Forecasts

Analysts from ING project a market surplus in the upcoming quarter, which may encourage the continuance of production restraints by Saudi Arabia and Russia. Despite this, both Brent and WTI notched a 6% decline the previous week, as geopolitical concerns seemed to ease, with U.S. diplomatic engagements aiming to diminish regional tensions.

Geopolitical Risks and Price Support

The oil market currently does not heavily factor in geopolitical risks, keeping this as a potential catalyst for price hikes. For the week ahead, attention turns to China for economic indicators, following their less-than-stellar October factory data. WTI is expected to sustain above $80, with potential fallback to August lows if breached, while Brent should remain buoyed between $80 and $85, supported by the supply cuts, anticipated cessation of interest rate hikes, and a softening U.S. dollar.

Potential Impact of U.S. Sanctions on Iran

On the geopolitical front, the U.S. House of Representatives has passed a bill aiming to tighten sanctions on Iranian oil, targeting foreign entities processing Iranian petroleum. The impact of these potential sanctions on Iran’s oil exports remains to be seen, with factors like national security waivers and China’s import behavior playing significant roles. Domestically, the U.S. noted a decrease in active oil rigs, reaching the lowest count since January 2022, indicating a shift in production dynamics.

Short-Term Forecast

The short-term outlook remains cautious yet optimistic, as the market weighs supply constraints against geopolitical developments and economic data points.

Technical Analysis

The current daily price of light crude oil futures at 81.10 is trading above the main support level of 72.48, indicating a firm underlying market strength. It is also marginally below the minor resistance level of 82.68, suggesting a possible retest of this threshold.

The price sits comfortably above the 200-day moving average of 78.24, which is typically seen as a bullish market indicator, pointing to a longer-term uptrend. However, it remains below the 50-day moving average of 86.30, indicating that there may be some short-term bearish sentiment or a consolidation phase in the near term.

The mixed signals from the moving averages and proximity to minor resistance suggest a cautious outlook, with potential for both upside if the minor resistance is breached, and downside if the price retreats from these levels.

Overall, the sentiment leans cautiously bullish, with an emphasis on the word ‘cautiously’ due to the price’s position relative to the moving averages and resistance levels.