Crude oil forecast: Crucial week as OPEC meeting and key data loom

Crude oil prices have come off their earlier highs, after starting the day brightly following some stronger-than-expected activity data out of China at the weekend. This could be a pivotal week for the crude oil forecast. With key US economic data on the horizon and the OPEC+ meeting later this week to discuss oil production targets, market participants are bracing for significant developments. Persistent concerns over demand and rising supply from non-OPEC sources have kept prices under pressure. So, unless the OPEC+ makes a substantial announcement, it’s unlikely that another delay in planned production increases will offer long-term support to prices.

Demand challenges for oil

The OPEC+, which controls nearly half of the global oil output, faces significant challenges as it aims to reverse production cuts by 2025. Stagnant global demand, coupled with increasing supply from non-OPEC producers, continues to create headwinds, pushing prices lower. Despite efforts to stabilize the market, oil prices have turned negative for the year, dropping by about 20-25% from their peak hit in April. Despite some strength observed in Chinese manufacturing data, there are no major signs of a big turnaround in demand growth. So, it will be up to the supply side of the equation to help lift prices. Speaking of…

OPEC+ meeting holds key to market direction

Oil prices have always been more supply-side driven given an inelastic demand curve. Therefore, the upcoming OPEC+ meeting on December 5, which comes at a critical time, holds more significance for prices than any of this week’s data releases. Elevated interest rates, a strong US dollar, and weak global economic growth are weighing on the oil market from the demand side of things. On the supply side, with US output already at record levels in 2024, the risk of market oversupply looms unless global growth picks up or OPEC+ implements significant production cuts. Adding to the uncertainty, speculation around a potential second Trump term has fuelled expectations of higher US oil production.

This makes the OPEC’s job quite tough, complicating the crude oil forecast: does it want to achieve higher oil prices but lose market share to US shale producers, or allow oil prices to fall to potentially support demand?

Well, according to Reuters, the OPEC+ is reportedly considering postponing the planned production hike for January, something which is now the base case scenario for many oil analysts. This decision, tied to resolving issues like the UAE’s agreed production increase for 2025, is expected to be finalized at the December 5 meeting. However, a substantial delay will be necessary to meaningfully support prices; otherwise, oil could quickly resume its downward trajectory amid persistent macroeconomic pressures.

Saudi's oil pricing strategy could further undermine black gold

Market tensions are further heightened by expectations that Saudi Arabia may announce a sharp price cut for its crude in Asia for January. A Reuters survey suggests the Arab Light grade could see reductions of 70 to 90 cents per barrel, marking multi-year lows. However, the results of the OPEC+ meeting could ultimately shape Saudi Arabia’s official selling prices for early 2025.

Israel-Lebanon ceasefire

Oil prices dipped last week following news of a ceasefire between Israel and Lebanon, which also weighed on gold prices. While the Middle East remains a geopolitical hotspot, the ceasefire has diminished some of the geopolitical risk premium that had been supporting oil prices since the outbreak of Israel’s conflict. But with Israel resuming attacks on Lebanon despite the ceasefire deal, this goes to show that the Middle East situation remains tense and could easily deteriorate.

Technical crude oil forecast: WTI levels to watch

Source: TradingView.com

Last week’s decline kept US oil prices below the key resistance zone of $69-$70, as seen on the WTI chart. Remaining below this range, any short-term rebounds are likely to be temporary within the broader bearish trend. Without a definitive reversal pattern on the charts, technical traders may continue favouring bearish setups near resistance over bullish ones at support, increasing the likelihood of further downside pressure.

The critical support range to monitor starts at $68.00, a level where WTI has consistently found support despite brief breakdowns. This zone extends to $67.00. Should prices break below the $67.00-$68.00 range, the next focus will be the November and September lows at $66.54 and $64.94, respectively. A potential fall to $65.00 could also raise the possibility of oil potentially heading down to the May 2023 low at $63.60.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R