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Crude Oil Price Decline Stalls at Support as OPEC Discusses Production Cuts

Crude Oil Price Decline Stalls at Support as OPEC Discusses Production Cuts

Peter Hanks, Strategist

Crude Oil Price Outlook:

  • Crude oil fell precipitously in January as coronavirus fears eroded risk appetite and growth prospects for the Chinese economy alike
  • After its decline from $65.40 to nearly $51, crude oil finds itself on the precipice of a technical bear market
  • OPEC is in the middle of a multi-day meeting in which production cuts have been discussed, a potential lifeline for crude prices

Crude Oil Price Forecast

Crude oil narrowly escaped bear market territory (defined as a decline of 20% or more from a recent high) on Wednesday as it climbed from Tuesday’s lows around $49.50 to reclaim the $51 mark. While crude has escaped the technical designation of a bear market for the time being, the commodity’s outlook remains in question.

The spread of coronavirus has resulted in quarantined cities and reduced economic activity in China, a key source of crude oil demand. In turn, crude oil prices plummeted and have been buoyed by technical support around $50 and the potential for deeper production cuts. To that end, OPEC officials engaged in a series of meetings this week to discuss possible options for the members to pursue. If the group can agree to further reduce production, it could result in a boost in crude oil prices, but Russia has already voiced opposition.

Crude Oil Price Chart: Daily Time Frame (October 2018 – February 2020)

crude oil price chart

That being said, the prospect of deeper production cuts providing a lifeline for crude oil prices looks thin at the time being. Therefore, the growth-linked commodity may struggle to reclaim lost ground until virus fears cool and growth forecasts level off. If a rebound does occur, initial resistance may reside around $53.90, followed by the Fibonacci level at $55.57.

On the other hand, a break beneath – and daily close below – the psychologically significant $50 could translate to further crude oil weakness. Should it occur, subsequent support is rather sparse which could see losses accelerate toward the December 2018 low around $42.43. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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

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