Crude oil can reverse direction only if OPEC decides to cut output by 1 mbpd

Oil prices have declined by almost 30 percent in just a span of 2 months. Last week, oil prices have stayed flat with no major convincing direction on either side.

Oil prices exacerbated selling after US eased sanctions on Iran temporarily and also due to rise in oil production by the OPEC countries and Russia. Also, the global growth demand worries aggravated selling in oil prices reversing the outlook on oil and shifted the market into surplus.

At present, oil investors are eagerly awaiting some of the major developments in the commodity market as the December month is packed with major policy announcement which will provide a new direction to the commodity investors. Next week, OPEC oil output policy is slated on December 6 2018 followed by Brexit deal voting result outcome on December 11,  2018 and US Federal Reserve policy meeting on December 19, 2018.

The Organization of the Petroleum Exporting Countries is planned to meet on December 6, 2018 to decide on whether to cut/add oil supply in the market.

The market expectations are that the OPEC would reduce its oil production by 1.0-1.4 million barrels per day to offset an emerging supply glut and on reducing demand due to global growth slowdown worries.

Saudi believes it is important to reduce the output this year to limit the market surplus in 2019. The indication from the OPEC, Saudi Arabia and Russia have been mixed over oil output policy as on one side Saudi Arabia plans to trim its output while on the other side it is producing at rate of 11.7 mbpd, record high level. There have been no assurances from Russia as well on trimming production.

United States, one of the three largest oil producers, is producing at record high levels in 2018. These three nations hold one-third of the global oil output, all producing above 11 mbpd signifies surplus scenario to be built in the year 2019.

If the OPEC cuts at least 1.0 mbpd along with the resolution of US and China over trade issues, then we can expect Crude oil to witness a relief rally towards USD 55-USD 57 per barrels. Else, the downtrend in Crude oil will continue towards USD 44-USD 40 per barrel.

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