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Oil Prices This Week: Key Fundamentals and Outlook

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Last week, WTI crude oil prices rose just 0.1%, while the United States Oil Fund LP (USO) rose 0.2%. Crude oil rose for the third consecutive week. Earlier in the month, optimism about the US-China trade deal boosted prices. Later, there were more expectations for the production cut to be extended into 2020.

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Oil prices and production cut

Previously, OPEC+ extended the 1.2 MMbpd (million barrels per day) production cut agreement until March in 2020. However, OPEC+, which is led by Saudi Arabia and Russia, might extend the production cut beyond March. In fact, a deeper cut is also expected. By the end of the first week of December, OPEC+ will decide on the production cut. OPEC+ includes OPEC members and non-OPEC oil producers like Russia, Brazil, and a few others.

Next year, oil’s supply will likely exceed the demand. Read Why Are Crude Oil Prices Falling Today? to learn more. According to CME’s OPEC Watch Tool, there’s a 81.5% probability that OPEC+ member countries will continue with the current production cut plan. However, traders had low expectations for another cut by OPEC+.

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Important events

The API and EIA (U.S. Energy Information Administration) will report inventory data for the last week on Tuesday and Wednesday, respectively. The reports are crucial for oil prices. In addition, the EIA will also report the monthly crude oil production data on Friday. US oil production will also impact crude oil prices. Baker Hughes’s rig count report in the last trading session of this week will also be watched closely.

Crude oil’s moving averages and price target

On November 22, WTI crude oil futures settled 2.1%, 3.7%, 3.3%, and 0.7% above their 20, 50, 100, and 200-DMAs (day moving averages), respectively. On November 21, the prices decisively moved above the 200-DMA. However, since September 27, WTI crude oil futures have hovered near this moving average. When the API and EIA release inventory data this week, the 200-DMA will be an important support zone for oil prices.

Last week, WTI crude oil’s implied volatility was at 28.1%. This week, WTI crude oil active futures will likely close between $55.87 per barrel and $59.67 per barrel. The price range is based entirely on oil’s implied volatility in the last trading session at a confidence interval of 68%. Also, the model assumed a normal distribution of prices.

There’s another important development in the oil market. On November 21, WTI crude oil futures’ implied volatility fell to 27.9%—the lowest level since the end of July. A fall in the implied volatility usually signals an upside in oil prices. The opposite is also true. To learn more, please read Crude Oil’s Implied Volatility Suggests It Could Fall Below $50.

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