U.S. West Texas Intermediate and international-benchmark crude oil futures are down more than 6% on Friday after Russia said it will not agree to steeper oil production cuts by OPEC and its allies to support prices in the face of a huge decline in oil demand due to the rapidly spreading coronavirus outbreak, Reuters reported.
The selling pressure was strong enough to take out Brent crude oil’s earlier weekly low, driving prices to their lowest levels since 2015. WTI crude oil, held its weekly low at $43.85, just slightly above its January 20, 2016 main bottom at $43.55.
A Russian high-level source told Reuters on Friday that Moscow would not back an OPEC call for extra reductions in oil output and would agree only to an extension of existing cuts by OPEC and its allies, a group known as OPEC+.
Most Analysts Not Surprised by Russian Rejection of Plan
On Thursday OPEC pushed for crude output by OPEC and its allies – a group known as OPEC+ - to be cut by an extra 1.5 million barrels per day (bpd) in total until the end of 2020. The call came ahead of an OPEC+ meeting scheduled for Friday in Vienna.
Non-OPEC states were expected to contribute 500,000 bpd to the overall extra cut, OPEC ministers said. But Russia and Kazakhstan, both members of OPEC+, said they had not yet agreed to the deeper cut, raising the risk of a collapse in cooperation that has propped up crude prices since 2016, Reuters reported.
Early in the session…
U.S. West Texas Intermediate and international-benchmark crude oil futures are down more than 6% on Friday after Russia said it will not agree to steeper oil production cuts by OPEC and its allies to support prices in the face of a huge decline in oil demand due to the rapidly spreading coronavirus outbreak, Reuters reported.
The selling pressure was strong enough to take out Brent crude oil’s earlier weekly low, driving prices to their lowest levels since 2015. WTI crude oil, held its weekly low at $43.85, just slightly above its January 20, 2016 main bottom at $43.55.
A Russian high-level source told Reuters on Friday that Moscow would not back an OPEC call for extra reductions in oil output and would agree only to an extension of existing cuts by OPEC and its allies, a group known as OPEC+.
Most Analysts Not Surprised by Russian Rejection of Plan
On Thursday OPEC pushed for crude output by OPEC and its allies – a group known as OPEC+ - to be cut by an extra 1.5 million barrels per day (bpd) in total until the end of 2020. The call came ahead of an OPEC+ meeting scheduled for Friday in Vienna.
Non-OPEC states were expected to contribute 500,000 bpd to the overall extra cut, OPEC ministers said. But Russia and Kazakhstan, both members of OPEC+, said they had not yet agreed to the deeper cut, raising the risk of a collapse in cooperation that has propped up crude prices since 2016, Reuters reported.
Early in the session of Friday, crude oil prices were plunging because some traders were increasing bets that the proposed deal would collapse, but some believed Moscow would ultimately endorse the agreement. These traders turned into sellers after Reuters reported Russia’s rejection of the deal.
Putin Power Grab May Be Motive Behind Russia’s Decision
Timothy Ash, senior emerging markets strategist at Bluebay Asset Management, said in a research note that Russian President Vladimir Putin “likely want to take this to the brink, to maximize his own geopolitical leverage to get OPEC Middle Eastern countries coming to him begging to agree to cuts.”
“I guess then he will ask for concessions elsewhere, e.g. Gulf financing for Syria reconstruction,” Ash said.
Earlier in the week, Putin said that Russia can cope with the recent decline in oil prices as the coronavirus has spread internationally but offered a chink of light to OPEC as the producer group pushes for deeper supply cuts.
Moscow had been resisting further curbs, arguing that reduced output by OPEC and its allies, known as OPEC+, will not necessarily revive demand, sources said.
“I want to stress that for the Russian budget, for our economy, the current oil prices level is acceptable,” Putin told a meeting with Russian energy officials and producers to discuss the coronavirus and its implications.
He added, however, that this does not set aside the need for action, “including together with foreign partners”.
Meanwhile, Russian Energy Minister Alexander Novak said on Monday that Moscow is evaluating the smaller oil production cut proposal made by OPEC+, adding it had not received a proposal for deeper cuts.
Weekly Technical Analysis
There’s not a lot to analyze in a market that is being driven by strong downside momentum. Picking a bottom is not suggested and too risky. Selling weakness is also a risky proposition because of the possibility of a quick reversal to the upside. The best strategy is to sell rallies since the main trend is down.
If looking to sell weakness then look for sell stops to be triggered under the January 20, 2016 main bottom at $43.55. However, be quick to exit if prices regain this level. When it comes to trading momentum, one has to remember that its “momentum in, and momentum out”. You’re shorting because the momentum is trending lower, and you’re out when the downside momentum shifts back to the upside. The trade is not so much about price levels.
If the downside momentum stops at or above $43.85 to $43.55 then consider this the first sign that the selling is getting weaker, or the counter-trend buying stronger. Overcoming $45.92 will indicate the buying is getting stronger. This could trigger a further rally into a short-term 50% level at $50.16.
Overcoming $50.16 will indicate the buying is getting stronger. Don’t get too excited about the market’s upside potential, however, since the main trend won’t change to up unless buyers can take out the last swing top at $54.66.
Bearish traders have two choices. They can sell weakness under $43.55 or they can wait for a counter-trend retracement into $50.16.
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