Originally published by AxiTrader
OPEC meets in Vienna tonight in what is widely anticipated to be a rubber stamp on the already telegraphed decision for an extension of the current production cuts until March 2018.
This expectation and the spike low below $44 recently have neatly combined to take both WTI and Brent back into the upper half of the range which has mostly prevailed for the past 6 months.
But the question I'm wondering this morning is whether all the good news is baked into the cake or whether OPEC might have a little surprise as it seeks to keep prices at the higher end of the range.
Over the past week we have heard hints of deeper cuts, and last night the Russian oil minister suggested maybe it will be a 12 month, not 9 month, extension to the current production freeze.
I'm not sure further extensions would have much effect. But deeper cuts, real ones not just flirting at the edges, would certainly help drive prices higher.
But equally I'm not sure OPEC is in for cheap or even easy wins. Rather I have always held that the desire to lower inventories is a desire to get prices to a higher plain and keep them there.
That is something that was reinforced in comments from the Algerian oil minister last night. Noureddine Boutarfa told Reuters that, “for Algeria, the higher the price the better, but the budget focused on $50 a barrel in 2017, $55 a barrel in 2018. $55-$60 a barrel may be an acceptable price for Algeria”.
Certainly US production and the growth of the rig count has complicated the issue for OPEC.
But with inventory levels coming down - last night's EIA data showed the 7th straight week of draws with another expectation-beating 4.4 million fall last week - OPEC looks like it might be slowly getting the job done.
That leaves the way open for more rigs to be added in the US. And certainly, it leaves the way open for a continued increase in US production. And it exposes OPEC to competition and market share loss to North American producers.
But that is the price they have to pay for the cartels dire fiscal position.
Earlier this week I shared this chart of OPEC oil receipts which shows they are in a worse position than a decade ago. So what choice do they have except to try to do something about the price.
Which brings me to the charts, I'll use WTI as my benchmark today.
Much expectation is built into this meeting given OPEC has well and truly jawboned the market higher in the run-up. A deeper cut could cause a pop but there is also much room for disappointment.
The key level of topside resistance and the one which could open up a move to range highs above $55 is the trendline that currently sits at $52.39. A break would be an important signal that having found support oil is now looking to test the sellers.
But a failure here would suggest a move back toward $49.30/50 - maybe lower.
Here's the chart.
Have a great day's trading.