Crude oil prices are holding steady on Friday as OPEC members have entered into a closed session, with a press statement on the outcome of the meetings expected later today.
OPEC Meeting: Matters Arising
The key agenda at the meeting, which had non-OPEC member Russia in attendance have bordered on the following:
Whether the present production limits set in 2018 would be maintained or whether the cartel would cut production.
Whether or not the extension of any cuts or maintenance quotas would be extended and by how many months
Emphasis on compliance with production quotas, which has largely been an issue in the last year.
Russia had failed to comply with production quotas it was assigned in all but two months, with Russia’s energy minister Alexander Novak insisting that Russia’s quota had to exclude condensates. Sources close to the situation indicate that OPEC may have agreed to a production cut of 500K barrels per day with member states and Russia as well, and that these will be extended until March 2020 at the earliest.
Possible Outcomes from OPEC: How WTI Crude Oil Price Could React
The crude oil markets have been expecting an extension of production cuts at the very least, and markets have been reacting positively to the feelers from the meetings. However, price action for today has stalled into a doji and it is obvious that markets are eagerly awaiting the press conference.
The key focus in the press statement is in whether the Russians will get the condensate exclusion they are looking for, and if this will bring about unanimity in the decision to effect deeper cuts as well as an extension. This position reflects the Saudi position, and the number 1 producer in OPEC had pledged yesterday to deepen its own production cuts if all members and Russia agree to comply with assigned quotas. This is a tricky position especially as Nigeria, one of the countries that has regularly over-pumped crude, appears in dire need of cash to implement its 2020 budget which includes a minimum wage increase for the country’s state workers.
A resolution on deeper cuts may be good for WTI crude oil in the short-term, but real adherence over time will decide the medium-term and long-term outlook for WTI crude oil price action.
What looks likely to play out here is a case of “buy the rumour and sell the fact”.
The rumour here is that OPEC’s members may have agreed to deeper cuts, which may see a knee-jerk rice in crude oil prices. But this may not be sustained and if it shown that members are cheating on their quotas, WTI crude oil price will find it hard to sustain any upside moves.
WTI crude oil is trading at 58.23. Resistance continues to remain at 58.50, which intersects with the return line of the ascending channel.
A break to the upside targets the 60.75 resistance area, with possible further extension to 63.47 if the buying momentum is strong.
On the flip side, rejection at 58.50 opens the door to 55.65 initially, which is also close to the lower border of the channel. A downside break of the channel targets 54.15 (previous neckline of June/July double bottom).More content