In the week since our last edition of What’s Affecting Oil Prices, Brent averaged $62.43/bbl last week, losing some steam from the prior week on a lack of strong new market developments.

For the upcoming week Stratas Advisors expect Brent to average $62/bbl, assuming the upcoming IEA report will be supportive of the recent OPEC supply deal. Given slowing levels of trading activity heading into the winter holidays, the possibility for a sharp price correction has risen. Stratas Advisors expect the Brent-West Texas Intermediate (WTI) differential to average $5/bbl.

The supporting rationale for the forecast is provided below.

Geopolitical: Positive

Geopolitics, as it relates to oil, could continue to drive volatility but is unlikely to have an additional immediate fundamental impact. However, the few active hotspots that bear watching are more likely to hamper oil supply, further helping prices.

Dollar: Neutral

Crude oil and the dollar traded in line last week but crude oil remains more influenced by fundamental factors and sentiment. The DXY is being driven by debate around tax reform as the deadline to pass legislation nears.

Trader Sentiment: Positive

Recent CFTC data shows that Brent and WTI managed money net longs remain near record levels, but have failed to increase significantly. On a technical basis, Brent appears to be safe, trading in the middle of the Bollinger Bands and with a Relative Strength Index of 55.7. Slowing activity and decreased liquidity heading into the winter holidays could raise the risk of a price correction.

Supply: Positive

Last week the number of operating oil rigs in the U.S. rose by 2. U.S. oil rigs now stand at 751 compared to 498 in 2016. U.S. oil supply will remain a closely watched metric after the successful extension of the OPEC/non-OPEC supply agreement.

Demand: Positive

Demand remains healthy in the U.S., with strong product exports indicating a robust appetite elsewhere as well. Gasoline and distillate stocks are both following seasonal patterns and remain near five-year average levels on robust domestic demand and strong export flows. Demand is likely to remain strong through the end of the year on healthy holiday consumer spending and travel.

Refining: Neutral

Margins were mixed last week with U.S. Gulf Coast and Mediterranean margins up while Rotterdam and Singapore fell slightly. U.S. WTI cracking was up $0.93/bbl after WTI lost some support last week. All enclaves remain at or above the five-year average. Combined with healthy global demand, current margins will continue to incentivize crude intake.

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