Prices have recently got an additional boost on speculation that the OPEC+ might extend their output cuts at a virtual meeting expected later this week, probably on Thursday. The OPEC+ producers had initially agreed to cut output by 9.7 million barrels per day in May and June, scaling back to 7.7 million bpd from July through December...
Oil prices were up for the sixth consecutive week and fourth straight day on Tuesday. Brent was closing in on the $40 hurdle while WTI was not too far off around $36.50, at the time of writing. Prices have recovered sharply after that historic drop back in April when the front month WTI contract went into the negative territory as no one wanted to take delivery as storages were full. But conditions have improved markedly since, thanks to the impact of the huge output cuts by the OPEC and allies, and as demand recovered with the easing of global lockdown.
Prices have recently got an additional boost on speculation that the OPEC+ might extend their output cuts at a virtual meeting expected later this week, probably on Thursday. The OPEC+ producers had initially agreed to cut output by 9.7 million barrels per day in May and June, scaling back to 7.7 million bpd from July through December. However, the OPEC+ are now expected to extend their output cuts of 9.7m bpd into July and possibly August, provided Russia agrees. Apparently, Saudi Arabia has been leading talks to push for extending the cuts.
If it is two or more months of extensions, then crude prices could add to their gains with Brent oil likely to climb to $40-$45 per barrel. However, a one-month extension may not cause too much of a positive response as that will likely disappoint expectations. In any case, the OPEC+ will have follow-through on their commitment to cut output in order to sustain higher prices. If some members don’t comply to the cuts, then oil prices may come under renewed selling pressure soon.
Source: TradingView and ThinkMarkets
Ahead of the OPEC+ meeting, the path of least resistance is to the upside from a technical point of view. Both contracts have been making higher lows. Brent has broken above old highs circa $36-$37, meaning it has now created its first higher high. So, the technical picture looks bright and will remain that way while it still resides inside its bullish channel. This means that a small retracement will not materially impact its short-term bullish price structure. There is a gap between $39.60 to $45.50 for Brent. This void is what the bulls will aim to fill next. The bears meanwhile will need Brent to break out of the rising channel before they have any reason to step in meaningfully.