WTI Prices Sink Ahead Of Critical OPEC Meeting

Yesterday, we saw West Texas Intermediate prices slip significantly ahead of today's key OPEC meeting. Despite global lock downs being in place, crude oil prices have experienced a bullish resurgence rising from around the $30/Barrel mark in October 2020 to the recent high of $63.84. However, WTI prices are presently under pressure ahead of a key OPEC output decision.



Today's OPEC meeting is likely to be key in forming a near term trend for crude oil and the market will be holding its breath ahead of the outcome. There is presently speculation that the oil cartel will be seeking to increase production in the coming weeks partly in response to a lack of adherence in their prior output cuts. The definition of compliance has always been a thorny issue amongst the various Gulf states and is particularly difficult to police given the current economic environment.

In particular, Saudi Arabia’s surprise output cut last month led to a fairly sustained rally, but a cursory review of supply from other Gulf nations showed a concerted increase which went someway to offsetting the supply cut. Additionally, the Saudi’s also stated that this voluntary cut would only be in place for two months and that expiration time is now upon us.

Subsequently, it is likely that OPEC will agree on supply increases given that they are happening already, albeit unofficially. Any such decision’s impact upon WTI prices are likely to hinge upon the level of supply increases that the market can soak up. Anecdotally, there would appear to be quite a bit of pent-up demand for crude with rumors of traders looking to secure tankers at cut rate prices. This suggests that market participants are viewing the medium-term bullish trend to resume after an initial correction following OPEC’s decision.

Price action presently has WTI trading just under the key $60.00 handle but there are some signs that buyers are present just below a zone of support around the $59.25 mark. However, on a positive note, the 1.5% decline in the last 24-hours has largely priced in a reasonable supply increase by OPEC.

Ultimately, as long as OPEC moves towards increasing supply to a reasonable level, it’s unlikely that the medium-term bullish trend will be broken. Subsequently, do not expect sharp selling in the wake of the meeting as this specific increase in supply has largely been factored into prices.