WTI Extends Gains Ahead of OPEC Meeting

Oil extends rally heading into OPEC+ meeting

After rallying over 4% across the previous session and with the OPEC+ meeting kicking off today, it’s fair to say that oil will be under the spotlight on Thursday. WTI is extending gains in early trade on Thursday.

Oil prices surged in the previous session on expectations of deeper OPEC output cuts and following data showing a large drop in oil inventories last week. Yet despite Wednesday’s 4.1% rally, oil prices are only back to where they were a week ago, before they tanked on the lack of progress towards a US – China phase one trade deal.

What OPEC Will Discuss
Attention is now firmly on the OPEC+ meeting where members are seeking to extend the current production cuts beyond March 2020, with some members supporting deeper cuts of 400,000 bpd taking total cuts to 1.6 million bpd.

Why extend cuts?
OPEC is looking to slash oil output further to prevent an oil glut in the coming year amid surging production from the US, now the world’s largest oil supplier, plus increased output from non-OPEC countries such as Brazil and Norway is expected to flood the market. And let’s not forget that a deeper supply cut could support the stock offering price of Aramco

Problems will further cuts

The problem however, it that production cuts by the OPEC + group are no longer a reliable method of influencing global oil process. Given that the group including Russia only control under 50% of the worlds oil supply, this isn’t sufficient to force prices higher through supply restrictions. This could prevent the group from taking cuts further.

Source: Reuters

On the demand side, with no US – China trade deal in place, doubts over the strength of the global economy in the coming year could also dent demand. However, this could quickly change should the US and China agree to a deal.
The broad expectation is that oil production cuts will be prolonged. However, a further cut is not fully priced in and the market remains skeptical as to whether OPEC+ will agree to that.

Levels to watch:
WTI has been trading within a familiar range of $52 - $61 since May and between $52 - $59 since August. We would be looking for a meaningful move above $59 to confirm an uptrend. The price then could target $64. On the downside support can be seen at $52, prior to $50.50.



Related Articles

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.