Markets

Breakdown of the latest developments on the global exchanges
Mar 2, 2020, 6:04 PM GMT
#Energy

Expectations of Production Cuts by OPEC Supported the Price Surge of Crude Oil

Field oil workers at work

The ministers of OPEC will be meeting this Thursday as per usual in Vienna, to have urgent discussions regarding the repercussions of the coronavirus epidemic on the global supply of crude oil and the plummeting prices of the precious commodity.

The price of crude oil tumbled by more than 17 dollars since the beginning of January on production inhibitions in the industrial heartland of China and expectations for muted demand over the past couple of months.

The distorted industrial output in China and elsewhere is partially due to the separate efforts of the Chinese and other governments to curb the spread of the disease by closing down various production centres in the infected areas.

It is widely speculated that OPEC will announce the adoption of emergency countermeasures on Friday, to respond to the waning global demand for crude oil. Those speculations revolve around an anticipation for the reduction of the aggregate output of the organization.

Oil traders' optimism was reinvigorated today, partially because major central banks announced their readiness to implement more accommodative monetary stances to tackle the subdued global demand, and partly because of the expectations for crude oil reductions.

That is why the tumble of oil prices was momentarily halted on the market open of this week’s trading session, as traders are currently anticipating stabilization of the market once it finds a new supply and demand equilibrium.

Even so, it would be premature to argue in favour of a likely termination of the current bearish downtrend. The negative impact of the panic that has hijacked the markets since the outbreak of COCVID-19 in China continues to be severe.

At any rate, the panic is likely to persist for as long as the long-term ramifications on global growth from the spread of COVID-19 continue to be uncertain. Speculations are additionally fuelled by fears over the potential emergence of a new recession.

That is why OPEC would not only have to assure investors that it is ready to respond to the waning demand for oil at present, but also that a potential new recession does not jeopardize the global oil supply networks.

Meanwhile, the price of USOIL started consolidating above the significant support level at 45.00.

The MACD demonstrates the increasing bullish momentum as more and more traders start entering long on the mounting expectations for reductions in output.

The two hammer candlesticks confirm this increasing bullish sentiment in the short-term.

Crude Oil 4H Price Chart