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Crude nears pre-lockdown highs ahead of OPEC+ meeting

Fawad Razaqzada Fawad Razaqzada 25/02/2021
Crude nears pre-lockdown highs ahead of OPEC+ meeting Crude nears pre-lockdown highs ahead of OPEC+ meeting
Crude nears pre-lockdown highs ahead of OPEC+ meeting Fawad Razaqzada
Crude oil has been on an amazing run since the initial lockdowns back in March 2020, much like all other risk assets. After dropping into the negative in April, WTI oil is now only a couple of dollars shy of the 2020 and pre-lockdown high of $65.60ish and Brent is also very close to its corresponding high at $71.20ish. Prices have risen mainly because of the record production cuts from the OPEC and on-OPEC allies, such as Russian and Kazakhstan, collectively known as the OPEC+. Demand has also recovered as countries have slowly re-opened. Optimism surrounding the vaccine rollout programmes have helped to accelerate the rally in recent weeks as investors look forward to more normal times ahead. But this also means that the OPEC+ will be keen to ease production curbs, especially as prices have risen so sharply. Where will oil prices head to next?
 
For now, crude oil continues to remain supported as investors look forward to the March 4 OPEC+ meeting, when the group must decide whether to provide more crude oil to the market from April and onwards.
 
In December, the OPEC + restored 500K barrels a day as part of the gradual process. The new national lockdowns meant the easing of productions curbs were paused in January. Just over 7 million barrels of oil per day remains withheld which will need to be pushed back into the market in the coming months.
 
With oil prices having recovered nicely and lockdowns likely to ease in the coming weeks and months, the OPEC+ will likely agree to the gradual easing of output. They obviously don’t want to scare the market, but equally wouldn’t want to lose market share to US shale producers. So, I doubt oil prices will sell-off sharply, unless the cuts happen to be much larger than expected, or the group signals quicker rollback of cuts in the near future.
 
Talks are likely to be tense, especially with Saudi Arabia already providing additional cuts to drive prices even higher while Russia is keen to retain its market share. I think Saudi will try to encourage everyone to increase production minimally. But if that strategy fails, this time it is very unlikely that Saudi would be willing to provide further voluntary cuts.
 
In terms of demand, I think this will rise sharply as the global economies re-open and travel re-starts. But the rising levels of demand for oil will be offset as OPEC supply is likely to rise proportionally. So, the net impact of this will be neutral on prices. It is important to remember that oil prices have been going up in anticipation of a sharp global recovery. Thus, the rally is likely to slow or even reverse soon as the higher prices attract fresh non-OPEC supplies to hit the market.
 
As things stand though, I think both Brent and WTI will hit their pre-lockdown highs first, before we potentially see a sizeable correction. In any case, I think the upside for oil looks limited from here.

brent
Source: ThinkMarkets and TradingView.com

WTISource: ThinkMarkets and TradingView.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.

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