Oil To Move Above $41 If Trump’s Tweet Is True

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Friday on increased expectations of a production cut by OPEC and other major producers known as OPEC+.

The markets are following through to the upside following record gains on Thursday after U.S. President Donald Trump said he had brokered a deal that could result in Russia and Saudi Arabia cutting output by 10 million to 15 million barrels per day (bpd), representing 10-15% of global supply. Trump also said he made no offer to cut U.S. output.

According to Reuters, the source added that OPEC+ is watching the outcome of a meeting between Trump and the oil companies later on Friday and that a final figure on cuts depends on participation by all oil producers.

Saudi's Call for Emergency Meeting

Saudi Arabia called on Thursday for an emergency meeting of OPEC and non-OPEC oil producers, saying it aimed to reach a fair agreement to stabilize oil markets.

Members Support Meeting Suggestion

Kuwait's oil minister Khaled al-Fadhel said on Friday he supported Saudi Arabia's invitation for a meeting between OPEC and non-OPEC oil producers.

The energy ministry of non-OPEC producer Azerbaijan, meanwhile, said the OPEC+ meeting is planned for April 6 and will be held as a video conference, Russia's RIA news agency reported.

Many Unanswered Questions

Traders are probably asking what a 10 to 15 million barrel per day production cut would do to oil prices. The June Brent daily chart indicates a minimum rally to $41.00 and a maximum move to $45.38. May WTI crude oil could reach $36.70 and maybe $41.29.

Traders are also asking if the U.S. will be involved in the production cuts. There are three possible outcomes of the meeting. Firstly, OPEC+ including Russia, and the United States can agree to production cuts. Secondly, OPE+ including Russia agree to cuts, but the U.S. refrains from making an agreement, or thirdly, the talks could conclude with no deal.

Technical Analysis

Weekly May WTI Crude Oil Technical Analysis

Weekly Trend Analysis

The main trend is down according to the weekly swing chart. However, momentum may be getting ready to shift to the upside with the formation of a potentially bullish weekly closing price reversal bottom. To the lay person, that is a lower-low and higher close on the weekly chart.

The chart pattern will not signal a change in the trend, but if confirmed, it could lead to a 2 to 3 week counter-trend rally equal to at least 50% of the last break.

A trade through $19.27 will signal a resumption of the downtrend. The main trend will change to up on a trade through $54.82. Given the current fundamentals and the average weekly range, this is highly unlikely at this time.

The short-term range is $54.82 to $19.27. If the closing price reversal bottom is confirmed then look for a potential rally into the first 50% level at $37.05.

The main range is $64.39 to $19.27. Its retracement zone at $41.83 to $47.15 is another upside target zone. We're not likely to see a test of this zone unless the demand destruction ends.

Weekly Technical Forecast

Based on this week's price action, the direction of the May WTI crude oil market the week-ending April 10 is likely to be determined by trader reaction to the downtrending Gann angle at $26.82.

Bullish Scenario

Taking out and sustaining a rally over the downtrending Gann angle at $26.82 will indicate the presence of buyers. If this move is able to create enough upside momentum then look for the rally to extend into the bottom of the gap at $36.70 and the first 50% level at $37.05.

Bearish Scenario

The inability to follow-through to the upside next week, following this week's closing price reversal bottom will be a sign of weakness. A failure to overcome the downtrending Gann angle at $26.82 will signal the presence of sellers.

If this creates enough downside momentum then look for a break into a minor pivot at $23.92. If this fails then look for the selling to extend into the closing price reversal bottom at $19.27.

Taking out $19.27 will negate the chart pattern and signal a resumption of the downtrend. This could trigger an acceleration to the downside with $15.00 the psychological downside target.

Conclusion

The major issue here is with demand. Reducing supply will certainly help prices, but probably not enough to fill the price gaps from early March.

Weak shorts are covering their positions, but there isn't any strong evidence of traders flipping to the long side.

We're likely to see the short-covering rally continue until the markets absorb the size of the production cuts. However, if the cuts come in below 10 million or if they are done piecemeal rather than all at once, then traders will have a less-bullish reaction to the news.

Furthermore, concerns over demand destruction are outweighing supply worries so short-sellers are likely to cap the rally. Demand worries will start to dampen once the global new coronavirus case curve begins to flatten.