Crude oil price remained volatile in the Asian session as the market waits for the OPEC++ meeting scheduled for tomorrow. The virtual meeting will be attended by OPEC and non-OPEC members like Russia and Norway. The goal is to deliberate on the current oil prices and how to reduce supply.
Media reports suggest that Russia and Saudi Arabia have made significant progress behind the scenes. The question is whether other oil producing countries like Canada, Norway, and the US will get behind the proposed supply cuts. Another question is whether these supply cuts will have a major impact on oil prices in the longer term.
The third question is whether any intervention is actually necessary. Some analysts have argued that leaving this question to the market would be the best idea. The argument is that if prices remain so low for so long, many oil producers will go out of business, which will help to rebalance the market.
In fact, many American and Canadian companies are already struggling and there are chances that many of them won’t survive. Other major oil producing companies in OPEC would also be forced to reduce production. For example, if oil price remained below $20, it would mean that Nigeria would be losing $3 for every barrel produced.
At the same time, many companies are slashing their capital expenditure costs. Just yesterday, Exxon Mobil announced that it would halt some expenditure. Additionally, the number of oil rigs has also been falling and some estimates say the number could fall by 25%.
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Looking at the four-hour Brent crude oil chart, we see that the price has been struggling for direction in the past two days. The price is slightly above the 50-period and 25-period moving averages. The price is between the 23.6% and 38.2% Fibonacci Retracement level and is struggling to move below the arrows shown in green. The Fibonacci is drawn by connecting the lowest level in March with the highest level this year.
I expect the pair to remain being volatile today because there is a possibility of news coming out ahead of the market. In case of positive news, I expect the price to move above the important psychological level of $40. This price is also slightly below the 50% Fibonacci level. On the flipside, if the news is not positive, I expect the price to move below $30.