The Organization of the Petroleum Exporting Countries (OPEC) controls 40% of the world oil production and 60% of global oil trade; hence, its high importance to the market as it directly influences the commodity’s stock price as well as the demand in other energy markets including natural gas. A decision of reducing the supply means higher prices of oil and vice versa. At the last meeting on October 5th, they reduced the supply by 2 mb/d. Will they reduce it again on December 4th, stabilize it, or take a U-turn in their decision?
Last week saw a decline in most commodities as demand worries were raised by protests against massive lockdowns in China intended to stop the spread of the coronavirus. Early Asian trading hours saw both Brent and Crude Oil futures decline by as much as 5%, dropping below $80 and $74 a barrel, respectively, and reaching their lowest point of the year. Copper and Iron Ore listed in Dalian Commodity Exchange decreased by up to 2% during this time. Additionally, Dalian cooking oil futures fell by as much as 3% due to the continued closure of numerous hotels and restaurants. Due to an increase in COVID cases in the nation's three main mining centers, the weekly spot price for coal freighted from the top mining region of Shanxi to the trade hub of Qinhuangdao dropped by 11% to 1,260 yuan per ton. With the rise in cases, the country has set strict restrictions, but the Chinese people protested and asked to ease the restrictions.
These protests mirror the economic status in China which in turn translates into a decrease in demand for oil since China is the most industrialized country in the world. At the time of writing this article, the manufacturing purchasing managers’ index (PMI) recorded 48 in November from 49.2 in October 2022.
Tuesday saw a recovery in oil prices after the OPEC members and their allies refuted media claims that they were considering undoing their output-cutting decision from October. On persistent worries about the sluggish status of the world economy and low oil demand going into 2023, the international benchmark Brent was trading below $90 per barrel. The Wall Street Journal reported that the oil cartel was discussing increasing output by 500,000 barrels per day at its next meeting on December 4. Saudi Arabia, the United Arab Emirates, and Iraq all refuted this information. The 2 million barrels per day decrease that the Saudi-led group announced in October will be eased with an OPEC increase. There are different views on the next decision by the organization especially that the price cap for Russian oil will take place starting December 5th furtherly burdening the energy sector. Goldman Sachs thinks that there is a “high probability” of a reduction in the supply and estimates oil prices to hit $110 next year. FGE estimates that the cartel may decide to cut production by a further 2 million barrels, while RBC Capital Markets predicted either no change in supply or a reduction of up to 1 million barrels, depending in part on how prices performed this week.
The projection by OPEC for 2023 oil demand is negative in which the forecast is standing at 28.6 million bpd, 100,000 bpd lower than its earlier estimate. Demand for the group's crude in 2023 has been revised down by 200,000 bpd to 29.3 million bpd in November. Also, the U.S. Energy Department also lowered its expectations for global output and consumption in global output and consumption expectations in 2023.
So, after understanding the demand and supply forces, let’s look at a weekly technical analysis for UK Crude oil- Cash, which you can find on our trading platforms. The downward slowed down since the 4th week of September 2022. Brent oil is regaining last week’s loses up 4.29% at the time this report is developed, trading at $87.15 versus closing at $83.79 at -4.44% last week. To date, the strongest bull momentum was witnessed in the last two sessions of this week which contributed to a 4.16% gain for Brent. Trading at the 100-weeks exponential moving average (EMA) coinciding being November 2018 resistance level as well would elevate the appetite for a bullish run up to $91.60 followed by $96 weekly resistance levels. Weekly support levels are $78 followed by $65.80-$64.80).
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Figure1: Weekly technical analysis for UK Crude oil- Cash| Source: TradingView
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