Oil Price Fundamental Weekly Forecast – Traders to Play ‘Waiting Game’ Until OPEC+ Meeting

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures closed higher last week on increased expectations of a production cut by OPEC and other major producers known as OPEC+.

After dropping to multi-year lows earlier in the week, the market reversed to the upside Thursday after U.S. President Donald Trump said he had brokered a deal that could result in Russia and Saudi Arabia cutting output by 10 million to 15 million barrels per day (bpd), representing 10-15% of global supply. Trump also said he made no offer to cut U.S. output.

Last week, May WTI crude oil settled at $28.34, up $6.83 or +31.75% and June Brent crude oil finished at $34.11, up $6.16 or +18.06%.

According to Reuters, the source added that OPEC+ is watching the outcome of a meeting between Trump and the oil companies later on Friday and that a final figure on cuts depends on participation by all oil producers.

On Friday, OPEC+ announced it was planning a video conference for April 6.

Demand Issues Will Continue

The major issue here is with demand. Reducing supply will certainly help prices, but probably not enough to fill the price gaps from early March.

Weak shorts are covering their positions, but there isn’t any strong evidence of traders flipping to the long side.

We’re likely to see the short-covering rally continue until the markets absorb the size of the production cuts. However, if the cuts come in below 10 million or if they are done piecemeal rather than all at once, then traders will have a less-bullish reaction to the news.

Furthermore, concerns over demand destruction are outweighing supply worries so short-sellers are likely to cap the rally. Demand worries will start to dampen once the global new coronavirus case curve begins to flatten.

Weekly Forecast

A delay in the virtual meeting between OPEC and its allies scheduled for Monday is likely to hit oil prices this week following last week’s record-setting comeback in crude oil prices, sources familiar with the matter told CNBC. The meeting will now “likely’ be held on Thursday, sources said. This also means traders will be playing the “waiting game” most of the week.

Given the delay in the OPEC meeting and rising tensions between Saudi Arabia and Russia, pessimism is expected to return to the crude oil markets on Monday.

“It’s probably going to crater,” Again Capital’s John Kilduff said. “There was a lot of optimism priced into oil Thursday and Friday. With this new Saudi, Russia spat, it doesn’t look like it’s going to come together.”

Traders are probably asking if the U.S. will be involved in the production cuts. There are three possible outcomes of the meeting. Firstly, OPEC+ including Russia, and the United States can agree to production cuts. Secondly, OPEC+ including Russia agree to cuts, but the U.S. refrains from making an agreement, or thirdly, the talks could conclude with no deal.

Traders are also probably asking what a 10 to 15 million barrel per day production cut would do to oil prices. The June Brent daily chart indicates a minimum rally to $41.00 and a maximum move to $45.38. May WTI crude oil could reach $36.70 and maybe $41.29.