OPEC+ agreed to gradually increase crude production starting in January

Recap: Oil futures continued to trend higher on Thursday despite OPEC+ agreeing to gradually increase crude production starting in January. This contradicts earlier expectations for an extension of current output cuts. OPEC and its allies have agreed to increase production by 500,000 barrels per day to 7.2 million barrels, down from 7.7 million barrels per day. The OPEC+ producers, however, failed to find a compromise on a broader and longer term policy for the rest of next year. January WTI settled at $45.64 a barrel, up 36 cents, or 0.8%, while Brent for February delivery added 46 cents, up almost 1%, to settle at $48.71 a barrel.  January RBOB rose 1.8% to $1.2617 a gallon and January heating oil settled at $1.3933 a gallon, up 2%.

Technical Analysis: January WTI settled above the flag formation we have been monitoring. This type of pattern is considered a continuation pattern, in which the previous trend is expected to resume. The projected upside target based upon the breakout is $47.15. It appears that WTI is set to trade within the $40 – $50 range. Should we get a dip back below the 200-day moving average, we would look for a test down at the bottom of this range.

Fundamental News: On Thursday, OPEC+ agreed to increase its output by 500,000 bpd starting in January.  However, OPEC and Russia failed to find a compromise on a broader and longer term policy for the rest of next year.  The increase means OPEC+ would cut production by 7.2 million bpd or 7% of global demand from January, compared with the current cuts of 7.7 million bpd.  Russia’s Deputy Prime Minister, Alexander Novak, said the group would now gather every month to decide on output policies beyond January with monthly increases not exceeding 500,000 bpd.  He also stated that compensatory cuts for countries which overproduced in previous months had been extended until March 2021.  He said Russia will increase its output by 125,000 bpd in January.  Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, said the meeting was difficult due to differences between many members.  He said the compensation scheme was not as successful as the producer group had hoped.  He also stated that it will be a while before Libya’s oil production will need to be regulated. 

S&P Global Platts said it would open a consultation with oil market participants on the possible inclusion of the U.S. crude grade WTI in its dated Brent oil price assessment, which forms the basis of the Brent benchmark.

Chevron Corp lowered its long-term capital and exploratory budget to between $14 and $16 billion annually through 2025, while setting the budget for next year at the low end of the range. The company had earlier forecast annual expenditures between $19 billion and $22 billion through 2025.  Chevron said that despite the cut to the budget, it expects to increase investments in areas like the Permian Basin.  The company also set the budget for next year at $14 billion, unchanged on the year, and kept aside $11.5 billion for exploration and production related activities.  Its downstream refining and related operations were allocated $2.1 billion. 

U.S. House Speaker, Nancy Pelosi, and Senate Republican Leader, Mitch McConnell, agreed in talks on Thursday that a COVID-19 relief package and an omnibus government funding bill should pass “as soon as possible.”  Earlier, U.S. House Republican Leader, Kevin McCarthy, said he was more optimistic that a coronavirus relief bill could get done in Congress now that the national election is over. 

Early Market Call – as of 8:25 AM EDT

WTI – Jan $45.90, up 26 cents

RBOB – Jan $1.2674, up 57 points

HO – Jan $1.3979, up 46 points

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