The meeting of OPEC and its allies including Russia starts today in Azerbaijan. In December, the world’s top oil producers agreed to withhold 1.2 million barrels a day from global markets and thus helped Brent and WTI prices to rebound. At the same time, the countries have different opinions on whether the curbs should be maintained through the end of the year, so traders are on the lookout for news about OPEC’s further plans.
Why is it important?
OPEC member countries produce about 40% of the world’s crude oil. If you add their allies, the percentage will be even more significant. As a result, the actions of OPEC members have an immense impact on oil prices. The latter influences the entire global economy. Higher oil prices invigorate the economies of oil exporters, hurt oil importers, and add to inflation pressures everywhere. Lower oil prices naturally lead to the opposite effect and signal weak global demand. As oil depreciated very much in 2018, the current efforts of OPEC can be regarded as positive for the overall risk sentiment.
Both Brent and WTI gained more than 30% since the end of December. The biggest negative risk for oil is the slowdown of global economic growth that may diminish fuel consumption and hence the demand for the commodity. So, has OPEC+ done enough to support oil prices?
All in all, OPEC looks fairly committed to the idea of keeping oil prices supported. The US sanctions on Iran and Venezuela also help to limit global oil supply. In addition, the number of oil rigs in the United States, which is, of course, not an ally of OPEC, fell last week to the lowest level since April 2018. It means that America doesn’t increase oil supply either. As a result, if OPEC manages to comply with its pledge to cut output and persuade the market that it’s willing to do more, crude oil will enjoy good times in the medium and longer term.
The most important things to watch from the meeting are statements of Saudi Arabia and Russia and the report of the Joint Technical Commission on production figures for February. The more signs of the prolonged productions cuts, the better for oil prices.
If you are looking for the technical clues, here are some. Both main oil benchmarks have what you may call an inverted “Head and shoulders” pattern on their charts. In addition, both instruments feature positive hints from the moving averages in the form of 50-day MA getting above the 100-day one. As long as Brent is trading above 53.50, it will retain chances for the medium-term upside. A break of resistance at 68.20 will trigger a bigger move up. For WTI support is in the 55.50 area, while resistance is at 59.60.