Sharekhan suggests strategy to trade crude oil ahead of Opec meet on Dec 5

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Crude oil on sidelines ahead of Opec scheduled meeting. 

Brent and WTI oil prices have largely been trading range bound in $6, since mid-October alternating between weekly gains and losses as concerns that geopolitical tensions would impact supply offset expectations of a glut in 2025. There remains plenty of uncertainty on the supply side this week.  

Opec is scheduled to hold its meeting on December 5, 2024, to discuss output policy for 2025. The meeting was originally scheduled for December 1, 2024. A handful of Opec members are set to gradually bring 2.2m b/d of supply back onto the market next year. 

Opec meeting in focus

Opec is all set to extend its latest round of oil output cuts until the end of the first quarter, Opec, which pumps about half the world's oil, has been gradually aiming to unwind output cuts through 2025. However, a slowdown in global demand and rising output outside the group pose hurdles to that plan and have weighed on prices.  Opec members are holding back 5.86 million barrels per day of output, or about 5.7 per cent of global demand, in a series of steps agreed since 2022 to support the market.  An output hike of 180,000 bpd - a fraction of the total - was due to come in January from the eight members involved in Opec’s most recent cuts of 2.2 million bpd.  

The hike has been delayed from October due to falling prices. Despite the group's supply cuts, global oil benchmark Brent crude has mostly stayed in a $70 to $80 per barrel range this year, having hit a 2024 low below $69 in September, down 18 per cent since early July.  

Opec November output forecast

The early forecast for Opec’s November production is once again showing jump in groups production to 27.02 million barrels per day, up by 120,000 barrels per day as, Libyan production increased by 110,000 barrels to 1.14 million per day, the highest since July, after restarting its Sharara oil field in October, however on brighter side Iraq’s daily output fell by 70,000 barrels to 4.06 million, still slightly exceeding its quota. 

Global macro data

Signs of strength in US and Chinese manufacturing activity are favourable for energy demand and crude prices.  The US November Institute for Supply Management (ISM) manufacturing index rose +1.9 to a 5-month high of 48.4, stronger than expectations of 47.5. Also, the China November manufacturing Purchasing Managers' Index (PMI) rose +0.2 to 50.3, stronger than the expectations of 50.2. But the Eurozone continued to see decline in factory activities along with a surge in inflation. 

US consumer demand eases

US gasoline demand has once again dropped under 9 mbpd and remains under the pre-covid level. Gasoline supplied to the market amounted to 8.51 million barrels per day, or 87,000 barrels per day higher than the previous week, while US domestic crude oil production rose 292,000 barrels per day to 13.42 million barrels per day, 293,000 barrels per day higher than the year-ago period. 

 

Alaska oil production rose 3,000 barrels per day to 444,000 barrels per day, while production in the Lower 48 rose 289,000 barrels per day to 13.05 million barrels per day

 

Outlook

Gains in crude were limited on Monday due to a stronger dollar. The market appears to be brushing off concerns that the delay in the Opec meeting signals internal disagreements within the group, as Opec and its allies face a decision about whether to revive curtailed production amid expectations of a glut next year.  

Overall, we expect crude oil prices to continue to see a range bound trading in short term WTI ($66-$72) and Brent ($69-$75). The medium to long term outlook would depend on Trump’s tariff unveiling once he resumes White House in January and the impact of it on the Chinese economy.

 

WTI Crude oil Jan: Support: $66, Resistance: $72.

MCX Crude Dec: Support : 5,650,  Resistance: 6,050.  (This article is by Mohammed Imran, research analyst at Mirae Asset Sharekhan. Views expressed are his own.)