Oil has been unable to hold onto earlier gains and is once again trending southwards on Thursday ahead of the highly anticipated OPEC meeting.
Saudi Arabia is expected to push the OPEC group plus Russia towards agreeing to further output cuts to help stabilize the oil market. The price of oil has shed around 20% since the beginning of the coronavirus outbreak as traders look to price in weaker future demand not just in China, but across the globe.
Russia is not on-board with the cuts so far, instead proposing that the existing production cuts remain in place until the end of the second quarter. However, Saudi Arabia is looking for additional cuts in the region of 1 million – 1.5 million barrels per day and to keep existing cuts of 2.1 million barrels per day in place until the end of 2020.
Traders lack confidence
The fact that the price of oil is slipping away suggests that traders are losing confidence that OPEC+ group will do enough to support prices. With Russia still not agreeing, achieving cuts to the higher end of the proposed range looks challenging at best.
Should OPEC attempt to strike a balance and go with cuts somewhere between Russia’s 0 and Saudi’s 1.5 million bpd, the market might not consider the move enough to support prices, particularly in light of the uncertainty surrounding coronavirus’ impact on global energy demand. In this scenario, we could even see the price tumble lower post announcement.
Levels to watch
Oil is trading down 0.3% on the day. It remains below its 50 sma, 100 sma and 200 sma on the 4 hour chart. The bears are in control.
Immediate support can be seen at $46.34 (today’s low) prior to 43.85 (low 28th Feb).
On the flip side resistance can be seen at 47.55 (today’s high) prior to $48 (50 sma) and $48.75 (high 26th Feb, 3rd March).
