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Oil Price Forecast: Extreme Volatility Ahead of Virtual OPEC Meeting

Oil Price Forecast: Extreme Volatility Ahead of Virtual OPEC Meeting

2020-04-05 03:00:00
James Stanley, Strategist
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WTI Crude Oil Price Analysis

  • In a world shifting towards virtual meetings, OPEC and their allies are joining the movement in hosting a virtual meeting on Monday to discuss production cuts.
  • Oil prices put in a historically strong move this week, bouncing by as much as 50% on news that OPEC and their allies have agreed to discuss moderating production in the effort of buoying prices.
  • Previously, Oil prices were in a hard sell-off both supply and demand concerns were pushing prices lower. The demand side of the equation still looks meager; but the supply part of the equation may get some help in the week ahead.

From Worst to First – Hard Bearish Trend Finds Support at $20 And Bounces Aggressively

It’s been an extreme show of volatility in Oil prices of recent, and that looks set to continue as OPEC and their allies will hold a virtual meeting on Monday to discuss production cuts. Making matters more interesting and contributing to this week’s massive show of volatility were hints from Russia indicating that Vladimir Putin would be open to cuts of around 10 million barrels-per-day. In early-March, Russia had rebuffed the prospect of cuts and that combined with demand concerns sent Oil prices reeling to 18-year-lows.

In total, the month of March saw WTI fall by as much as 60%, from a high of 48.64 to a low of 19.29; and for the year of 2020, that loss has been as large as 71% from the January high of 65.62. The $20 level, however, did appear to help cauterize support this week as buyers held the line a couple of different times upon tests around that level.

WTI Crude Oil Daily Price Chart

WTI Crude Oil Price Chart

Chart prepared by James Stanley; Oil on Tradingview

The trend began to flip in the latter-portion of this week as President Trump indicated that both Mohammed bin Salman of Saudi Arabia and Vladimir Putin of Russia would be open to production cuts in the range of 10-15 million barrels per day. So, while the demand side of Oil remans suspect with than half of the world in some form of economic shutdown, at least there will be some concentration on supplies in the effort of balancing prices-higher.

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This was furthered on Friday as a Monday virtual meeting of OPEC and their allies is expected to further broach the topic of production cuts, with Putin saying that cuts of around 10 million barrels per day were warranted but that would require participation from the United States.

Collectively, this turn of events helped to drive a bullish move from Wednesday through Friday that helped WTI crude oil prices to post their largest weekly gain on record, a move of more than 31% or, going from the Monday low up to the Friday high (using 29.05), a move of a whopping 50%.

WTI Crude Oil Four-Hour Price Chart

WTI Crude Oil Four-Hour Price Chart

Chart prepared by James Stanley; Oil on Tradingview

On a technical basis, the prospect of bearish continuation is generally what would come off as the more attractive approach given an aggressive trend combined with a strong pullback. But this is an unusual scenario given how strong the preceding sell-off was combined with the geopolitical risk factors in the backdrop. Few parties are served well by the bottom falling out of Oil prices and it seems as though we’ve hit an area where there could be some element of resolve, keeping the door open for further gains as demand will likely be depressed by both market forces and whatever deal OPEC and their allies end up striking upon.

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As such, this can keep the door open for further price increases as a deeply oversold move faces a series of headlines that likely won’t help to bring bears back into the mix, and this can keep the focus on WTI towards deeper resistance levels such as the $30 psychological level, the 32.72 Fibonacci level, followed by the 36.28-36.87 zone. Above that is a chunk of still-unfilled gap that runs all the way up to the 41.02 swing-low, which is now confluent with the 61.8% Fibonacci level of the March sell-off.

WTI Crude Oil Two-Hour Price Chart

WTI Crude Oil two-hour Price Chart

Chart prepared by James Stanley; Oil on Tradingview

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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