Oil Price Susceptible to Rise in US Output Following OPEC JMMC Meeting

Oil Price Talking Points

The price of oil appears to be stuck in a narrow range as the Organization of the Petroleum Exporting Countries (OPEC) plan to gradually restore production over the coming months, but the broader outlook warns of a larger correction in crude as it snaps the upward trend carried over from last year.

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Oil Price Susceptible to Rise in US Output Following OPEC JMMC Meeting

The price of oil attempts to push back above the 50-Day SMA ($59.88) after trading below the moving average for the first time since November, and crude may continue to consolidate following the OPEC Joint Ministerial Monitoring Committee (JMMC) meeting as the update to the production adjustments table reveals plans to slowly unwind the production cuts in response to COVID-19.

Image of OPEC production table

Source: OPEC

It seems as though OPEC and its allies are in no rush to switch gears as the group pledges “to assess market conditions and decide on production level adjustments for the following month, with every adjustment being no more than 0.5 mb/d,” and it seems as though OPEC+ will continue to regulate the energy market in 2021 as “the volatility observed in recent weeks warrants a continued cautious and vigilant approach in monitoring market developments.

In turn, the ongoing efforts by OPEC and its allies may keep the price of oil afloat as the most recent Monthly Oil Market Report (MOMR)insists that “in 2021, world oil demand is forecast to increase by 5.9 mb/d, reflecting the positive economic impact on oil demand during 2H21, but the recovery in US production may drag on crude prices as output increases for the second consecutive week.

Image of EIA Weekly US Field Production of Crude Oil

Recent figures from the Energy Information Administration (EIA) showed weekly field production widening to 11,100K from 11,000K in the week ending March 19, and a further rise in US crude output may drag on the price of oil ahead of the next OPEC JMMC meeting on April 28 with the group on track to gradually reverse the production cuts in response to COVID-19.

With that said, the decline from the yearly high ($67.98) may turn out to be change in market behavior rather than a near-term correction as the price of oil snaps the upward trend carried over from last year, and recent developments in the Relative Strength Index (RSI) highlight a similar dynamic as the oscillator tracks the downward trend established in March.

Oil Price Daily Chart

Image of Oil price daily chart

Source: Trading View

  • Keep in mind, crude broke out of the range bound price action from the third quarter of 2020 following the failed attempt to close below the Fibonacci overlap around $34.80 (61.8% expansion) to $35.90 (50% retracement), with the price of oil taking out the 2019 high ($66.60)as both the 50-Day SMA ($59.88) and 200-Day SMA($46.89) still reflect a positive slope.
  • However, the price of oil has slipped below the 50-Day SMA ($59.87) as it snapped the upward trend from November, with the Relative Strength Index (RSI) indicating a further correction in crude as it tracks the downward trend established in March.
  • The price of oil appears to be stuck in a narrow range following the failed attempt to trade back above the $61.80 (50% expansion) region, but need a move below the $58.00 (50% expansion) to $58.40 (23.6% expansion) to bring the Fibonacci overlap around $56.00 (23.6% expansion) to $56.70 (61.8% expansion) on the radar.
  • Next area of interest comes in around $52.30 (50% expansion) to $53.30 (38.2% expansion), which sits just above the February low ($51.64), followed by the $49.20 (50% expansion) area.
  • At the same time, a close above $61.80 (50% expansion) opens up the $62.80 (61.8% retracement) to $62.90 (78.6% expansion) area, with the next region of interest coming in around $64.20 (61.8% expansion).

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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