Oil prices failed to stage a rally despite the OPEC+ countries agreed to cut production by 9.7 million barrels per day. In a knee-jerk reaction, Brent crude briefly exceeded the $33 handle but retreated quickly afterward and even derailed the $31 level on Monday.
OPEC and its allies managed to finally strike a deal that was finalized on Sunday. Under the agreement, Mexico will cut 100,000 barrels per day, instead of its initial allocation of 400,000 barrels per day. The remaining 300,000 barrels per day will instead come from the U.S.
However, despite the unprecedented measures, the oil market failed to witness a rally following the decision as traders are still focused on the demand side. Global energy demand continues to decline amid the coronavirus pandemic, and it looks like the agreed measures are not enough to rebalance the market, at least at this stage.
In general, global investor sentiment has deteriorated again at the start of the week, with risky assets being under pressure on Easter Monday. Asian stocks declined decently, and gold prices continue to target the $1,700 psychological level as investors are turning more cautious ahead of quarterly earnings season that may disappoint due to the negative effect from the coronavirus outbreak.
From the technical point of view, Brent crude needs to stay above the $30 level so that to avoid deeper losses and fresh long-term lows. For now, the selling pressure is relatively limited as the market derived some support from the OPEC+ deal but it’s too early to call a bottom and bet on a rally as demand continues to decline. Moreover, the recession risks continue to intensify amid the widespread virus, so the longer-term outlook for prices remains bearish.
In a wider picture, the futures will likely remain in a limited range, with bearish risks still persisting. On the upside, Brent needs to make a decisive break above the $36 handle in order to retarget the $40 figure. Should the downside pressure increase, the barrel could easily get back below the $30 level and even challenge the $28 region.