Crude oil price declined in overnight trading as questions lingered about the historic oil supply cut deal that was reached on Sunday. The deal will see oil producers reduce their daily production by more than 9.7 million. This will translate to more than 10 million barrels considering that many firms will go out of business if oil prices remain at the current levels.
The main reason why oil prices have not risen as was widely expected is that there are still lingering questions about the deal. While non-OPEC members like the US and Canada agreed the deal, they were not required to cut their production.
In fact, a meeting called by the Railroad Commission of Texas yesterday showed that the industry was divided about the cuts. In the meeting, smaller oil producers like Pioneer Natural Resources and Parsley have called for deeper supply cuts, oil giants like Chevron, Exxon, and Occidental have opposed the idea. The smaller companies argue that low oil prices will lead to significant job losses.
Ironically, this will curtail production and lead to higher prices. However, the bigger companies argue that the market should determine oil pricing.
Other oil states like Oklahoma have scheduled similar meetings to deliberate on prices.
There are also lingering questions about demand. Recent reports have suggested that oil storage tanks have gotten full. Another report by the Financial Times said that some Saudi Arabian oil tankers had nowhere to go. Another concern is that some countries, especially Iraq and Nigeria, will cheat on the deal.
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The four-hour chart shows that the price of Brent crude oil found significant resistance at the 38.2 per cent Fibonacci Retracement level. As the price declined, it moved below the 23.6 per cent retracement level. This is a sign that the price may continue dropping. This is confirmed by the bearish crossover of the short and longer-term exponential moving averages. Therefore, there is a possibility that the price of Brent will continue moving lower and possibly test the support level of 28.