OPEC+ Decision a Short-Term Catalyst for WTI

While the ceasefire between Israel and Hamas has provided stability in the region, attention in the oil markets is shifting towards OPEC+ changes in supply and demand dynamics next year.

Shifting Geopolitics Drag on Oil

The potential return of Donald Trump to the White House is already influencing geopolitics as the president-elect threatens to take action on day one. Despite a ceasefire deal between Israel and Hezbollah, which may lead to the end of the war upon Trump's inauguration, and discussions about wrapping up the conflict in Ukraine, the focus of geopolitical risk and market interest for oil appears to be shifting towards trade policy, specifically tariffs. Notably, Trump has threatened a 25% tariff on all Canadian goods, the largest supplier of fuel to the US, which accounts for 52% of total crude imports. Conversely, 97% of Canada's crude exports go to the US, amounting to around 4.4 million barrels per day (bpd), which constitutes over a fifth of the crude oil consumed by the US.

Mexico and Brazil are also significant crude producers, with Brazil being among the countries threatened with 100% tariffs in Trump's efforts to prevent BRICS nations from launching an alternative reserve currency to the dollar. While these tariffs would only apply to exports to the US, its status as the world's largest consumer and producer of crude implies tariffs would impact the dynamics of the crude market. Nevertheless, the consensus is that these threats are intended as leverage to secure concessions in other areas. Still, the risk cannot be entirely dismissed, given Trump's history of starting trade wars during his prior administration.​

Near-Term Price Action Catalysts

For the time being, market attention is shifting to the upcoming OPEC+ meeting on December 5 and the release of crude oil inventory data by the Energy Information Administration (EIA). The oil cartel meeting is garnering interest as it was postponed from last week, with several ministers attending a Gulf summit over the weekend. However, in the past, delays in the meeting have often indicated that more time was needed to reach a consensus.

OPEC is planning to increase production by about 180,000 bpd next year, and the meeting is expected to focus on whether to extend production cuts into 2025. The group holds back around 6 million bpd, equivalent to around 6% of global oil demand. Notably, the cartel postponed previously expected output hikes due in November to December of this year. The sluggish economic situation in China has dampened demand, contributing to lower prices and speculation that the oil cartel might delay the previously agreed-upon oil output hike scheduled to begin in January once again.​

WTI Tightening Spells Breakout

WTI is trading within a tightening range, resembling a triangle pattern nearing an impending breakout in either direction, with short-term support sitting at $66.70 and resistance at $71.50. If WTI moves beyond the short-term extreme levels, a breach of $64.80 on the downside or $72.60 on the upside could potentially trigger further directional momentum.​

Source: SpreadEx / WTI

Key Takeaways

The ceasefire between Israel and Hamas has provided regional stability, but attention in oil markets is focused on expected OPEC+ supply and demand changes in 2025. Near-term catalysts for oil prices include the upcoming OPEC+ meeting on December 5th, where production cuts may be extended, and the EIA's crude oil inventory data release. Meanwhile, geopolitical shifts will likely keep impacting oil prices in the long term with Trump's return, as he threatens tariffs on Canadian goods, a major US oil supplier, and other major oil producers like Mexico and Brazil.