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Oil Forecast: Crude Oil Price Looks to OPEC Meeting, Supply Cuts

Oil Forecast: Crude Oil Price Looks to OPEC Meeting, Supply Cuts

2020-03-04 20:59:00
Rich Dvorak, Analyst
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CRUDE OIL FORECAST: OIL PRICE HINGES ON OPEC MEETING & EXPECTED PRODUCTION CUT AMID CORONAVIRUS SHOCK TO DEMAND

  • Oil is trading near 15-month lows after the novel coronavirus outbreak and backtrack in Middle East tensions caused the commodity to crash over 20% from its January high
  • Crude oil could recover recent downside with the prospect of extended production cuts from OPEC and its allies on the horizon
  • The price of oil might also benefit from global central banks keeping financial conditions accommodative in aims of boosting economic activity

OPEC, also known as the Organization of the Petroleum Exporting Countries, is responsible for about 30% of global oil production each year. The oil cartel is slated to convene for its 178th meeting tomorrow, March 05, which could prime oil price action for a big move.

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This is because OPEC and its allies are widely expected to detail changes to their outlook for crude oil output, which will look to rebalance market supply with demand. Global crude oil demand experienced a sharp drop-off over recent weeks due to economic fallout from the novel coronavirus outbreak.

Learn more – What is Crude Oil and How are Oil Prices Affected?

The price of oil plunged more than 20% since the beginning of the year as a result. With the prospect of extended OPEC supply cuts, however, the selloff in crude oil might stabilize. This could, in turn, provide oil prices with a chance to pivot back higher and recover recent downside.

CRUDE OIL PRICE CHART: WEEKLY TIME FRAME (JULY 2016 TO MARCH 2020)

Crude Oil Price Chart OPEC Meeting

Chart created by @RichDvorakFX with TradingView

A rebound in global GDP growth – likely driven by central banks cutting rates and simmering coronavirus concerns – has potential to facilitate a broader retracement in crude oil prices. Nevertheless, WTI and Brent oil price action might be strong-armed lower if OPEC members fail to reach a consensus over how deep to curb production.

Learn more – WTI vs Brent: Top 5 Differences Between WTI and Brent Crude Oil

Shifting focus to a technical perspective, we find that crude oil has, so far, found technical support around the $45.00 price level. This seems to align closely with the positively sloped trendline extended through the August 2016 and December 2018 swing lows.

Oil - US Crude MIXED
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A sustained bounce-back in crude oil price action could encourage bulls to target confluent resistance around the $50.00 handle, which is underpinned roughly by the 23.6% Fibonacci retracement of the commodity’s trading range throughout 2018.

CRUDE OIL PRICE CHART: DAILY TIME FRAME (SEPTEMBER 2019 TO MARCH 2020)

Oil Price Chart Crude Oil Forecast OPEC Meeting Coronavirus

Chart created by @RichDvorakFX with TradingView

The steep downtrend in crude oil prices since the January 07 swing high becomes more pronounced when analyzing a daily candlestick chart. Although the price of oil remains in bear market territory, bullish divergence on the MACD and RSI hint at a potential bottoming attempt.

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While this week’s OPEC meeting could provide crude oil with a catalyst that helps propel the commodity higher, technical resistance presented around the $50.00 price level may thwart a rebound in oil prices.

If this area of confluence can be overcome by crude oil bulls, however, the $52.50 mark might come into focus as the next possible upside objective. That said, a bearish death-cross of the 50-day and 200-day simple moving averages looms, which might reiterate the broader downtrend in crude oil price action.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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