After rallying over 4% across the previous session and with the OPEC+ meeting kicking off today, it’s fair to say that oil will be under the spotlight on Thursday. WTI is extending gains in early trade on Thursday.
Attention is now firmly on the OPEC+ meeting where members are seeking to extend the current production cuts beyond March 2020, with some members supporting deeper cuts of 400,000 bpd taking total cuts to 1.6 million bpd.
Why extend cuts?
OPEC is looking to slash oil output further to prevent an oil glut in the coming year amid surging production from the US, now the world’s largest oil supplier, plus increased output from non-OPEC countries such as Brazil and Norway is expected to flood the market. And let’s not forget that a deeper supply cut could support the stock offering price of Aramco
Problems will further cuts
The problem however, it that production cuts by the OPEC + group are no longer a reliable method of influencing global oil process. Given that the group including Russia only control under 50% of the worlds oil supply, this isn’t sufficient to force prices higher through supply restrictions. This could prevent the group from taking cuts further.
On the demand side, with no US – China trade deal in place, doubts over the strength of the global economy in the coming year could also dent demand. However, this could quickly change should the US and China agree to a deal.
The broad expectation is that oil production cuts will be prolonged. However, a further cut is not fully priced in and the market remains skeptical as to whether OPEC+ will agree to that.
Levels to watch:
WTI has been trading within a familiar range of $52 - $61 since May and between $52 - $59 since August. We would be looking for a meaningful move above $59 to confirm an uptrend. The price then could target $64. On the downside support can be seen at $52, prior to $50.50.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.