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OPEC+ meeting brings potential volatility for crude oil prices

While crude oil prices have been gaining ground of late, the upcoming OPEC+ meeting could bring major volatility to this consistent market.

Oil rig Source: Bloomberg

What and when?

Energy markets look set to kick into gear, with Organisation of the Petroleum Exporting Countries (OPEC) scheduling their final 2019 meeting for this upcoming week. Preliminary talks are undertaken by the Joint Technical Committee (JTC) on Tuesday, with the full complement of OPEC ministers engaging in discussions by Thursday. Finally, the week will be wrapped up on Friday when non-OPEC nations join the talks to bring a final decision on output for the forthcoming months.

This meeting seeks to build on the actions taken back in July, when the OPEC+ group decided to restrict production for a further nine months in a bid to shore up oil prices. With brent standing 4% lower than the levels seen around the announcement, it evident that their action didn’t have the desired effect. However, to some extent it did, with prices likely to have declined significantly more should OPEC have increased output.

Supply and demand expectations dampen market sentiment

Expectations for future demand and supply dynamics do not bode well for crude bulls, with OPEC lowering their forecast for ongoing demand growth earlier this month. On the supply side, the IEA predict non-OPEC nations to add another 2.3 million barrels per day (bpd) to output. This highlights the issue for OPEC members, with their actions to elevate prices largely undone by the likes of the US who continue to raise output and grab market share.

The question for traders is what markets are expecting and where the big market moves could come. Firstly, markets do expect the current production quotas to be extended before long, yet it's not known whether this decision will come at this meeting or in the new year. Should the group decide to hold off, markets will be watching closely for a signal of what to expend in 2020. Should they decide to extend the current production levels, the length of such an extension will also be notable. Should the extension occur at this meeting, many have predicted a three-month shift in the end date to June 2020. Should the decision come later, that deadline could be shifted back.

What to look out for

There are three scenarios which could see sharp market movements for crude. A decision to drop the current production restriction would be the most obvious, with a ramp-up in production bringing a sharp decline in energy prices. Next, we have the question of just where those production levels should be set, with a decision to raise or lower output likely to bring significant market gyrations. Finally, there is the question over whether partners such as Russia will remain collaborators, with a potential break off from the additional nations likely to drive crude lower.

Overall, this meeting is likely to see the group either hold off or provide an extension which maintains the current status quo. Of course, either of those scenarios will have a limited impact on prices. However, examples given above are largely detrimental to crude levels, with the only positive impact coming from a decision to decrease output further.

The technical view

From a charting perspective, the weekly time frame signals the recent ascent from trendline support, with both price action and momentum gradually gaining ground over the past two months. This comes as we regain ground lost in the weeks following the attack on Saudi Arabian oil facilities. The question is whether this is part of a long-winded recovery to continue the uptrend highlighted by this ascending trendline or simply a pause before we continue the downtrend evident since the October 2018 peak.

Brent weekly chart Source: ProRealTime
Brent weekly chart Source: ProRealTime

On the daily time frame, we can see the recent ascent slowing as price drops out of its ascending channel formation. With the price failing to break significantly into a new high over the course of November, there is clearly an element of consolidation or hesitancy on the bullish side of this story.

Brent daily chart Source: ProRealTime
Brent daily chart Source: ProRealTime

Finally, watch the four-hour chart for clarity over whether we are due another decline or simply a continuation of this recent uptrend. A break below the most recent swing low of $62.03 would provide us with a bearish signal as we head into this latest meeting. Until that happens, the uptrend remains in play.

Brent four-hour chart Source: ProRealTime
Brent four-hour chart Source: ProRealTime

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