Oil Price Fundamental Weekly Forecast – Testing Old Support Zone as OPEC+ Prepares to Meet

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures hit multi-year lows last week while posting their steepest declines in more than four years as the spread of the coronavirus raised fears of a global recession and consequently lower demand for crude oil and other refined fuels.

That’s the bad news. The good news is crude oil may have reached a value zone last week that could be very attractive to speculators, professionals and aggressive counter-trend buyers.

Last week, April WTI crude oil settled at $44.76, down $8.62 or -16.15% and May Brent crude oil finished at $49.67, down $8.27 or -16.65%.

The price is right for the start of a rally, but the news has to change in order to shake out the weak short-sellers trading the headlines. Furthermore, the selling in the stock market has to slow down in order to stop the hedge funds and professionals from selling crude oil positions to meet margin calls and to raise cash.

OPEC Related Bottoms Could Become Attractive Again

We have identified the price zone for value. It’s $45.92 to $43.55. Both are tied to news also. The first bottom at $45.92 is from December 24, 2018, shortly before OPEC and its allies began their second wave of production cuts.

The second bottom at $43.55 from January 20, 2016 began when OPEC+ originally implemented it plan to trim production.

Since both bottoms have OPEC+ as their nexus, perhaps this bottom will also be triggered by news from OPEC+. Russia recently said that it cannot make a decision about whether to cut production because it doesn’t have enough data on the impact of the coronavirus on demand, especially from China.

If the impact of the virus starts to subside in China then perhaps Russia will go into the OPEC meeting on March 6 to 7 with enough evidence to make a decision. If they do go along with the suggested cuts in output then this may be the spark the market needs to fuel a strong short-covering rally.

Other News

In other news, speculators, bet heavily last week that coronavirus may spread in the United States. If the outbreak continues to worsen in the U.S. then look for energy prices to continue to fall with the move led by gasoline. The United States is the world’s largest oil producer and consumer.

Gasoline stockpiles dropped by 2.7 million barrels in the week to February 21 to 256.4 million, the U.S. Energy Information Administration (EIA) said on Wednesday, amid a decline in refinery throughput. Distillate inventories fell by 2.1 million barrels to 138.5 million.

U.S. crude oil stockpiles increased by 452,000 barrels to 443.3 million barrels, the EIA report showed. This was less than the 2-million barrel rise analysts had expected.

Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil fell by one to 678 this week. That followed modest increases in each of the last three weeks. The total active U.S. rig count, meanwhile, also declined by one to 790, according to Baker Hughes.