Crude oil price dropped by about 0.75% ahead of a highly-anticipated OPEC+ meeting on supply cuts. The price of Brent is trading at $42.92 while that of West Texas Intermediate (WTI) has dropped by 0.70% to $40.27.
Supply cuts easing
Crude oil price is reacting to a report by Wall Street Journal (WSJ) that said that Saudi Arabia was advocating for more supply. The report said that the country was concerned about an extended period of supply cuts and the scramble for market share.
As such, Saudi Arabia, which is the de facto leader of the group is pushing the members to produce 2.2 million barrels more than they are cutting now. If this happens, it means that the members will be cutting 7.7 million barrels of oil per day.
This argument will prevail since most members of OPEC+ are not incredibly enthusiastic about supply cuts. For example, countries like Iraq, Nigeria, and Angola have cheated in the past. A source told WSJ:
“There’s going to be a scramble for market share, and the trick is how the low cost producers assert themselves without crashing the oil price.”
Also, the argument was supported by a report by the International Energy Agency (IEA) that predicted that demand has started to creep back up. Meanwhile, another report by Baker Hughes showed that oil rigs in the US were continuing to fall. The country reported 181 new rigs, down from the previous 185.
Still, the biggest challenge is demand from the United States. The number of new coronavirus infections has continued to surge, leading some states to consider new lockdowns. Also, another concern is about jet fuel because international travel will not resume any time soon.
Crude oil price technical outlook
Brent crude oil price is trading at $42.90. On the daily chart, this price is in the same range it has been in the past few days. Also, it is slightly above the 50-day and 100-day exponential moving averages. It is also along the 50% Fibonacci retracement level. The RSI is below the overbought level of 70 and is moving downwards.
Therefore, the outlook for Brent is neutral ahead of the OPEC meeting. The key levels to watch will be the support at $40, which is the psychological level and the 50-day EMA. On the other hand, a break above $43 will see the price continue rising.
Crude oil price forecast