- Summary:
- A large oil deal is expected to be unveiled soon. Here are the reasons why this trade deal won't save crude oil prices in the longer term
Crude oil price wobbled yesterday and overnight as participants focused on the ongoing deliberations on supply cuts. Yesterday, as we reported, Saudi Arabia and Russia were said to be inching closer to a deal that would see large supply cuts.
So far, no deal has been announced. Some media reports say the reason is that G20 members too want to step-in and stabilize the market. This could be what is holding down the talks between Saudi Arabia and Russia. Still, another virtual meeting is set to happen on Thursday when a deal is expected to be made. This means that there will be volatility in the oil market ahead of this news.
The biggest question is what the deal will entail and whether it will stabilize oil prices. Media reports say that a likely deal would cut about 10 million barrels of oil every day. This is a bigger number than many expects and would only depend on what the big oil producers do. For example, before the price war, Saudi exported about 9 million barrels every day while Russia produces more than 11 million.
The US, on the other hand, produces more than 12 million barrels a day. Therefore, each of these members would be forced to cut substantially. What’s unknown is whether non-OPEC members will agree to these cuts. Also, even with a 10 million supply cut, there will be an oversupply of about 2 million barrels.
Another concern is whether the deal will do anything to boost oil prices. While a deal will boost prices in the immediate term, there is a likelihood that gains won’t hold. Part of the reason is that supply is only one part of the equation. The other part is demand, and there is a little chance that the demand will be coming any time soon.
Sure, the curve of Coronavirus is flattening but it will take months before demand picks up again. All this means that relatively low oil prices will remain.
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Brent Crude Oil Price Technical Analysis
Crude oil price remained volatile in overnight trading as the market waited for news on supply. Brent is trading at $33.65, which is slightly below Friday’s high of 36.0. On the four-hour chart, the price has edged above the 100-period and 50-period exponential moving averages. The average true range, which is a good measure of volatility has inched downwards slightly. The pair could see some more volatility that will see it move below $30 or above $40.