Crude oil spent a very volatile week going close to nowhere. The price temporarily broke the uptrend from early October with Brent almost touching $60/b before recovering back to unchanged. While the news flow from Washington and Beijing on the prospect for a trade deal remained a key source of volatility, some oil related news also played its part.
Faced with a rising supply surplus in early 2020, due to rising non-OPEC production, the market took comfort from speculation that OPEC would extend production cuts until mid-2020. Earlier, the price weakness had to a large extent been driven by concerns that Russia would balk at supporting an extended production cut period. OPEC and Russia meet in Vienna on December 6, the day after the regular OPEC meeting. The supply side also attracted some attention with social unrest in both Iran and Iraq being a potential threat to supplies. The weekly U.S. inventory report from the Energy Information Administration provided some relief after showing the biggest drop in stockpiles at Cushing, the WTI delivery hub in Oklahoma, since August.
While the global economic slowdown and its impact on demand may approach a stage of being fully priced in the short-term, outlook remains troubled by the prospect for strong non-OPEC supply not being countered by action from the OPEC+ group. On that basis and barring any geo-political disruption, we maintain the view that Brent crude oil is likely to remain stuck in the low 60’s before eventually recovering sometime during 2020.