Against the ongoing sell-off in the oil markets, OPEC is reportedly discussing deeper production cuts of up to 1 million barrels per day. In particular, Saudi Arabia and a few other cartel members are leaning towards the additional cuts, citing the coronavirus outbreak that hurts global energy demand.
Brent crude extended its plunge to the $49.50 area, having eroded the $50 psychological level for the first time in nearly three years. The latest OPEC-related news headlines helped the prices to trim intraday losses but the overall sentiment in the market remains clearly bearish.
First, traders continue to focus on the coronavirus theme, with more and more countries reporting rising cases of the disease. By the way, the World Health Organization said that the outbreak has the potential to become a pandemic, and first cases of coronavirus have now been reported in New Zealand and Nigeria.
Second, it remains unclear if Russia will get on board with the initiative. As a reminder, Moscow rejected the idea of additional cuts by 500,000 barrels per day earlier this month. So, it’s too early to bet on a consensus within the OPEC+ group. On the other hand, the situation surrounding the virus has deteriorated dramatically since then, which could make Russia say “yes” during the meeting scheduled for March 5-6.
Anyway, oil market remains highly sensitive to virus-related headlines and stays vulnerable to further losses as an aggressive sell-off in the global financial markets continues at the fastest pace since the global financial crisis of 2008.
From the technical point of view, Brent may yet get back below $50 despite the recent recovery. Once below $49.50, the futures could target $46.70. On the upside, the initial target now arrives at $51 while the key local resistance is represented by the $53 figure that served as a fairly strong support before. On the weekly timeframes, the picture is clearly negative, with prices trading far below the key moving averages while the RSI is nearing the 30 mark and points south, suggesting further losses may lie ahead.