Oil is in an interesting place at the moment as near term pressures weigh on the commodity. However, there are also near term expectations that OPEC+ will intervene this month to help support failing prices. This article lays out the bullish and bearish case for oil.
The case for the bears
- The rising COVID-19 cases across the globe means that there are growing return to national lockdowns. In Europe there has been national lockdown news for Germany, France, Belgium and the UK.
- Hedge fund traders had been increasing their longs expecting OPEC+’s production cuts to be scrapped for the New Year. However, in the latest CFTC report money managers cut their net long US crude futures positions.
- The nation if Libya is now returning back to full production. The country is expected to return to 1 mbpd in the next month or so. Current production levels are up to 850K bpd+. This extra supply weakens oil price.
- Last week the EIA report did not help lift oil prices. Instead US crude oil inventories increased by 4.32mbpd over that week. This was much more than 1mbpd the market was expecting.
- A Biden victory is seen as oil negative Biden is keen on banning fracking on federal land and willing to cut subsidies for fossil fuels.
- US drillers add most oil and gas rigs in a month since May 2018. This means that the chances of over supply are there in the market.
The case for the bulls
- The main near term case for the bulls is that that OPEC+ will abandon proposed production cuts due to come at the start of the year. That should come this month either before the JMMC on November 17 or the end of the month/early December for the OPEC+ meeting. The strong November 02’s recovery in oil was due to the Russian energy minister meeting with domestic oil companies. At that meeting they discussed the potential for rolling over current production cuts for an extra 3 months until the end of Q1 2021.
- Possible vaccine news that helps the market recover.
In the near term the bias remains to the downside for bears so the recent strength should find sellers. However, production cuts from OPEC+ could give oil prices a boost, so watch out for that headline.