Members of the Organization of Petroleum Exporting (OPEC) meet tomorrow in Vienna, with the focus on how to stabilize oil markets after crude oil fell 22% last month. A cut in production from OPEC and Russia is the most likely scenario. The big question is how large of a cut? President Trump has made it very clear he wants lower oil prices, and a large cut (1.5 million barrels a day) could add to global tensions. Meanwhile, a cut of 1 million barrels a day is the low end of what could be adequate to stabilize a market that has an issue with too much supply. Of course, there always could be no cut, but we do not anticipate that happening.
We think the cut will come in around 1.3 million (between the high and low ends of potential cuts), and this will help provide clarity on the oil markets.
For more on our thoughts on OPEC and crude oil, be sure to listen to our latest edition of the LPL Market Signals podcast here. The OPEC and oil discussion starts at the 20:00 mark.
The OPEC meeting is important, but the bigger question for investors is whether the drop in oil could be signaling a global recession as demand dries up. “We don’t think this is an indication of slower economic growth—this is all about excess supply,” according to LPL Chief Investment Strategist John Lynch. Don’t forget, the United States is now the top oil-producing country in the world, producing more oil than Saudi Arabia and Russia over the past two months. This is an interesting new dynamic to the oil markets not present in previous decades.
Technically oil could be trying to form a bottom. In fact, after being down seven consecutive weeks, West Texas Intermediate crude oil (WTI) found support at the $50 level.
As our LPL Chart of the day shows, this is a potentially bullish chart pattern that could mark a near-term low for oil prices.
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