Prior to the beginning of last week, Stratas Advisors forecast that the price of Brent crude would stay relatively flat for the first part of the week and would decline with support at $45.50.
The forecast was based in part on the expectation that OPEC members would announce a deal, but the deal would be lacking in details about the execution of production cuts. Furthermore, we expected that the lack of specifics would disappoint the market, which would result in a decline in the price of Brent crude.
OPEC surprised us and others by not only announcing a deal, but also specific production cuts. As would be expected, the market responded positively to the news.
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There were two essentials to the deal progressing to this point. The first was the willingness of Saudi Arabia to allow Iran to increase production to pre-sanction levels. The second was the agreement of Russia to reduce production.
Once these two agreements were in place, other OPEC members were willing to accept their corresponding production cuts.
The price of Brent crude started the week at $47.24 then dipped on Nov. 29 before rebounding to $50.47 on Nov. 30 with the announcement of the OPEC deal. The price of Brent crude continued to increase through the remainder of the week and closed at $54.46.
The price of Brent crude has not been at this level since July 2015.
Stratas Advisors also forecast that the Brent-WTI differential would trade between $1 and $1.50 with respect to the February contract. In actuality, the Brent-WTI differential started the week at $1.18 then starting widening on Nov. 30. It reached $1.98 on Dec. 1 before closing the week at $1.81.
For the upcoming week, Stratas Advisors is forecasting that the price of Brent crude will stay relatively flat through the week with support at $53. The firm is also expecting that the Brent-WTI differential will trade between $1.25 and $2 with respect to the February contract.
For more price outlook and justification for this forecast, visit StratasAdvisors.com.
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