FIS: Crude Oil Market Overview: Crude rises ahead of production cut
Oil prices have been dropping for four straight months.
Reduced oil demand from the world’s second-biggest oil consumer, China, has dented global demand. So has interest rate hikes from central banks around the world, a strong U.S. dollar and a looming recession.
In the past week, Brent has increased on an expected production cut by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+.
Despite the devastation caused by Hurricane Ian, the markets have not been impacted as much as expected. The markets, however, do expect the OPEC+ meeting on 5th October to have an impact, which has the potential to increase prices.
OPEC+ is considering cutting oil supply by 1 million barrels per day (b/d) at its meeting in Vienna, Austria. This would be the most significant cut since the beginning of the COVID-19 pandemic, when production was slashed by 9.7 million b/d (10% of global production).
“The OPEC ministers are not going to come to Austria for the first time in two years to do nothing. So, there’s going to be a cut of some historic kind,” Dan Pickering, CIO of Pickering Energy Partners, said, referring to the group’s first in-person meeting since 2020.
This would be the second consecutive monthly cut after reducing output by 100,000 bpd last month. Some expect the actual number to be around 50% of what is rumoured. Some believe there is hope and potential for oil prices to increase after heavy losses over the last few months.
Analysts at Goldman Sachs see Brent reaching triple digits over the next three months, and WTI over the next six months. And others believe it won’t be enough.
Technical view of the Crude Oil Market:
December Futures – This technical is getting a little interesting as OPEC and its allies are making sounds regarding heavier production cuts.
This could potentially kill off our bearish Elliott wave cycle. As we stand, the technical is bearish in what looks to be a countertrend move.
Upside moves that fail at or below USD 98.06 will leave the technical vulnerable to further tests to the downside. However, above USD 95.80, it will warn that there could be an issue relating to the wave count, as this is an important fractal for the lower timeframe.
Technically bearish, but with momentum to the buy side, the saber rattling from OPEC+ would suggest it is worth keeping an eye on the commitment of trader’s report for any signs that an aggressive production cut could be on the cards.
The next move has the potential to not be linked to the technical.
Written by Mopani Mkandawire and Edward Hutton, Edited by Chris Hudson (https://freightinvestorservices.com/fis-live/).
