Oil Price Fundamental Daily Forecast – OPEC Wants to Make Aggressive Cuts, but Not Without Russia

U.S. West Texas Intermediate and international-benchmark crude oil futures are inching higher on Thursday after recovering from early session weakness. The two-sided trade is being fueled by worries over the impact of the coronavirus on global demand, uncertainty over OPEC and its allies’ ability to offset the drop in demand with additional production cuts and a general “risk-off” tone in the markets.

At 12:26 GMT, April WTI crude oil is trading $46.91, up $0.13 or +0.32% and May Brent crude oil is at $51.25, up $0.12 or +0.23%.

Technical factors are also influencing the price action with the price action suggesting traders are trying to build a support base before moving higher. This week’s rally was likely fueled by short-covering after the market touched a multi-year low on Monday. The subsequent pullback is designed to attract aggressive countertrend buyers. They are going to try to form a secondary higher bottom. To put it another way, professional buyers don’t chase prices, they wait for prices to hit value areas.

OPEC May Cut by 1.5 Million Barrels per Day if Russia Agrees

Two OPEC sources told Reuters that OPEC agreed to cut output by an extra 1.5 million barrels per day (bpd) in the second quarter of 2020 to support prices amid an outbreak of coronavirus but made it conditional on Russia joining in.

Saudi Arabia had suggested OPEC and its allies, including Russia make the aggressive production cuts while keeping existing cuts of 2.1 million bpd, which expire this month, in place until the end of 2020.

But Riyadh, the biggest OPEC producer, and other major producers have yet to win Russian support for such a deal. So far, Moscow has indicated it would back an extension but not a deeper cut. Despite this year’s steep slide in oil prices, Russia claims it can cope with current prices.

If OPEC+ was to decide to remove an extra 1.5 million bpd from the market, it would bring the group’s overall output reduction to 3.6 million bpd or about 3.6% of global supplies.

Daily Forecast

The early price action suggests investors are optimistic a deal will be struck. This viewpoint is being shared by other analysts.

“Our expectation is that OPEC+ will deliver a credible and coherent strategy that will take more barrels that what’s priced into the market off the table,” said Ehsan Khoman from Mitsubishi UFG, adding that stimulus by governments and central banks around the world would help reassure markets.

Oil prices are expected to rise if OPEC+ agrees to make the cuts, but gains are likely to be limited if the move doesn’t offset the expected drop in demand from the impact of the coronavirus. Experts continue to slash growth forecasts in reaction to slow factory operations and restrictions on travel and other economic activities around the world.