The front-month February 2025 Brent contract kicked off Monday by rebounding from last Friday’s lows, trading towards $72.70/bbl at the time of writing. However, the path of least resistance for the flat price this week is still one of weakness and further consolidation in the absence of a material change in the outlook of global supply/demand fundamentals, the economy or geopolitical tensions. We expect Brent to close the week between $70.00/bbl and $73.50/bbl. Risk takers are still likely to remain on the fence, avoiding raising exposure as they evaluate the impact of the following drivers this week:
- US and Chinese Economic data
- OPEC+ ministerial meeting on 5 December
- Weak technical signals.
Chinese manufacturing PMI data released on Monday beat consensus expectations, with the private sector Caixin measure rising for a second month to reach 51.5 in November. Arguably, the Chinese government’s stimulus measures may have helped stabilise and support output. But on the flip side, as the index’s performance was export-driven, one could also see this as a spurt of activity ahead of the imposition of additional tariffs by the US on China, which could, therefore, be unsustainable after January. Turning to the US, the release of jobs data on Friday will affect how the market views Fed policy moving forward when the FOMC gathers on 17-18 December. Following the exceptional circumstances that led to a weak November print, a rebound in non-farm payrolls will not press the Fed to move faster in its easing cycle, and a further 25 bp cut in the Fed’s fund rate is by no means guaranteed. Thus, the USD can be expected to remain relatively strong, acting as a headwind for commodity prices, including oil. We also get the release of the US ISM manufacturing index, but it is unlikely to bring much comfort as consensus expects a reading below the 50 mark that separates contraction from expansion.
Regarding fundamentals, the market will turn to the outcome of the OPEC+ ministerial meeting on Thursday, 5 December. The meeting, delayed from its original date of 1 December, is not expected to deliver any surprise. Most market participants believe that the producer group will continue to refrain from tapering voluntary supply cuts into next year, given projected implied global oil inventory builds this quarter and next year. This year, OPEC+’s supply cuts have provided a weak floor to oil prices, and a decision to return barrels to the market, even if incrementally, will raise the prospect of a price slump. The producer group may have to live longer with a lower market share to preserve revenues. The one thing to decide is just how long the current supply cuts will be prolonged. As usual, the meeting’s message will be about achieving compliance with assigned quotas; however, with countries like the UAE and Iraq consistently well above targets, the message is unlikely to resonate strongly with market participants.
Brent’s flat-price consolidation pattern continues as we move closer to the apex of a symmetrical triangle, with support just above $70/bbl and resistance around $73.50/bbl. Recent price action is moving further below the short and longer-term moving averages, with the RSI oscillator stuck in neutral. The market has failed to develop much strength as the MACD momentum indicator trends beside its signal line. This suggests, in our view, that prices can drift lower this week to test the support trend line of the triangle and potentially below should OPEC+ decision disappoint.
