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Oil Price Outlook Hinges on How OPEC+ Alliance Evolves

Oil Price Outlook Hinges on How OPEC+ Alliance Evolves

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Oil Price Talking Points

Developments coming out of the Organization of the Petroleum Exporting Countries (OPEC) meeting are likely to influence the price of oil as the group appears to be on track to extend the ‘Declaration of Cooperation.’

Oil Price Outlook Hinges on How OPEC+ Alliance Evolves

The price of oil attempts to retrace the decline from the end of November as recent remarks from OPEC and its allies suggest the crude producers will continue to regulate the energy market.

OPEC and its allies may emphasis their commitment to the ‘Declaration of Cooperation’ as Russia Energy Minister Alexander Novak pledges to uphold “the agreement signed on July 2 to extend the deal until April 1,” and the group may extend its efforts beyond the current deadline in order to keep oil prices afloat.

At the same time, OPEC+ may show a greater willingness to further reduce crude output asUS production hits a fresh record high in November.

Image of weekly US field production of crude oil

Fresh figures coming out of the US Energy Information Administration (EIA) showed weekly field production of crude oil climbing to 12,900K from 12,800K in the week ending November 15, and OPEC and its allies may unveil additional measures to counter the rise in US output as Secretary General Mohammad Barkindo insists that the production cuts from earlier this year are “providing the groundwork for a sustainable stability as well as adequate and timely investment in the industry.”

In turn, it remains to be seen if OPEC and its allies will make a major announcement as the most recent Monthly Oil Market Report (MOMR) shows global oil demand holding steady at 0.98 mb/d in 2019, with the outlook for 2020 also unchanged from the previous update.

As a result, the OPEC meeting may sway the near-term outlook for oil prices, and the commitment to ‘Declaration of Cooperation’ may continue to ward off a bear market even though the US and China, the two largest consumers of oil, struggle to reach a trade agreement.

With that said, the price of oil may largely track the range bound price action from the third quarter of 2019 as OPEC and its allies continue to regulate the energy market.

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Crude Oil Daily Chart

Image of oil price daily chart

Source: Trading View

  • Crude oil appears to be tracking the price action from the third-quarter, with flattening slopes in the 50-Day ($55.53) and 200-Day SMA ($57.51) indicative of range-bound conditions.
  • Recent developments in the Relative Strength Index (RSI) warn of a larger pullback in the price of oil as the oscillator snaps the bullish formation from October following the failed attempt to break/close above the Fibonacci overlap around $59.00 (61.8% retracement) to $59.70 (50% retracement).
  • Break/close below the $54.90 (61.8% expansion) to $55.60 (61.8% expansion) region opens up the overlap around $51.40 (50% retracement) to $51.80 (50% expansion), which sits just above the October low ($50.99).

For more in-depth analysis, check out the 4Q 2019 Forecast for Oil

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.