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OPEC+ meeting preview: uptrend dominates despite potential output hike

With crude oil prices approaching pre-Covid 19 levels, will an impending OPEC+ production rise derail the trend?

Crude oil price closes in on pre-pandemic high after impressive recovery

Crude oil prices enjoyed a dramatic 2020, with the decimation of demand leading to a complete capitulation in April. However, despite that incredible decline, we have seen largely one-way traffic since, driving Brent crude to close in on the $70 pre-crisis peak.

One of the key elements of that recovery was Organisation of the Petroleum Exporting Countries Plus (OPEC+) intervention, with the group enacting a 9.7 million barrel per day (bpd) cut in output. While we have seen some easing to those restrictions as prices recover, that output number currently lies at 7.125 million bpd.

What to watch for at OPEC+ meeting

OPEC + are due to meet once again on 4 March, with traders looking for a gauge on just how swiftly the group will look to reimpose production levels.

With demand still hindered by ongoing limits on both domestic and international movement, there is a strong chance for the group to remain somewhat cautious with any output hike until we see a substantial rise in demand.

There will be a particular focus on Saudi Arabia and Russia, with the Saudi’s having voluntarily cut production by one million bpd over the past two months.

Meanwhile, Russia have shown an inclination to raise output in the absence of any new development that could further hurt demand.

Nevertheless, we are expecting any hike in output to be gradual despite the notable surge in prices, with some fearing that higher prices will simply spark a resurgence in US shale output.

However, with a less supportive government stance, and firms having been hit hard financially over the course of the year, it is unlikely we will see the US shale sector bounce back in a way that many would have expected.

Brent turning lower, yet uptrend remains unbroken

The Brent crude chart highlights how consistent the recent trend has been, with each retracement bringing a fresh buying opportunity.

With the price easing back once again today, there is a good chance that we are looking at another potential entry point for bulls. The fact that this comes from the top end of an ascending standard deviation channel signals the possibility of a decent move lower.

However, until we see the trend broken, we are looking at another short-term retracement within a clear bullish pattern. The mid-February retracement highlights how we can often see a move below the initial swing-low to retrace the wider Fibonacci move.

As such, the key level to watch is $61.53, with a break below that level bringing an end to the immediate uptrend. Interestingly, the near-term swing low coincides with the 61.8% Fibonacci level at $63.63, bringing a great potential buying opportunity.

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