OPEC+ meeting preview: Will more production stall crude’s impressive rally?

Ahead of Thursday’s meeting, cracks are emerging in OPEC+’s united façade once more – what is going to that mean for the worth of crude?
Markets are starting the week off on a bullish note on the rear folks stimulus package hopes, with equities rising across the world , bond yields reversing Friday’s surge, and oil prices supported near their 14-month highs.

Crude oil are going to be particularly interesting for traders in the week before Thursday’s highly-anticipated OPEC+ meeting. After all, the cartel’s failure to succeed in an agreement was one among the first factors that drove oil prices into negative territory last April (I still have trouble believing this happened, nearly a year later!). then catastrophic development, coordination between Saudi Arabia and Russia increased, culminating during a nearly 9.7M b/d move production to stay prices supported.

Ahead of Thursday’s meeting, cracks are emerging in OPEC+’s united façade once more . Saudi Arabia reportedly wants to stay the present production cuts in situ until a minimum of April, while Russia and its allies are pushing for releasing another 1.5M b/d of supply onto the market. With oil prices testing 14-month highs and demand likely to extend as vaccine distribution accelerates across the developed world, there’s a compelling case for producers to release a minimum of some additional supply to satisfy incremental demand.

One other dynamic at play is that the unprecedented winter storm hitting the US state of Texas. Forced closures of drilling rigs have slashed about 4M b/d from US production and refining capacity over the last fortnight , though warmer weather is predicted to bring most of that production back online in the week . Nonetheless, this temporary disruption has contributed to surging oil prices and allowed other global producers (including OPEC+ countries) to draw down excess inventories. At the margin, last month’s shocking weather within the southern US could tilt OPEC toward increasing production later in the week .

WTI petroleum technical analysis

As we noted earlier, oil prices on each side of the Atlantic have surged in recent months on supply restrictions and optimism about the prospects for demand to select up throughout the year. Heading into in the week , West Texas Intermediate (WTI) crude is holding steady near a 14-month high near the highest of its 4-month bullish channel.

While the US oil blend remains during a healthy uptrend, there are some technical signs that a pullback could also be overdue, especially if OPEC+ opts to extend production by quite expected. Specifically, the contract’s 14-day RSI indicator is showing a bearish divergence, signaling declining buying pressure despite a marginal new high in price, as WTI approached previous resistance within the $63.00 area:

If this short-term bearish scenario plays out, WTI could pull back to check previously-reliable support at its 21-day EMA near $59.50, with an opportunity below there potentially exposing rock bottom of the established bullish channel near $58.00.

On the opposite hand, OPEC+ countries might be swayed by Saudi Arabia’s influence and hold off on production increases for an additional month. While not the foremost likely scenario in our view, it’s certainly within the range of outcomes and would likely cause a rush of shopping for pressure in WTI. If that plays out, it could drive WTI oil to a fresh 14-month high above $63.50 and open the door for a continuation up to the 2019 high near 2016.

Put simply, Thursday’s OPEC+ meeting could be the event that sets the trend for oil prices for weeks to return .