OPEC meeting expected to ramp up crude volatility and impact oil price

The coming days look set to bring substantial volatility for the oil market, with the weekend G20 meeting between the US President Donald Trump and China President Xi Jinping providing a backdrop to the Organisation of the Petroleum Exporting Countries (OPEC) meeting which reaches its conclusion on Tuesday.

However, while the US-China trade talks remain a key focus for markets over the weekend, we are also keeping a close eye on developments from a meeting between Saudi Crown Prince Mohammed bin Salman and Russia President Vladimir Putin at the G20 summit. Given that OPEC needs continued buy-in from Russia, that meeting is essentially provides a crucial precursor to Monday’s meeting.

US production and stockpiles shape expectations

That OPEC meeting has been widely anticipated given the huge swings in US inventories of late. With record crude production in the US, we have seen a substantial ramp up in stockpiles throughout much of the second quarter (Q2).

That rise in output brought prices coming crashing down, with WTI hitting a four-month low in early June. Interestingly, while OPEC market manipulation provides the traditional method of bringing prices back into line, the fact that prices are being driven lower by rising US output is plenty reasoning to doubt how keen some OPEC members would be to cut production. However, the past two weeks has seen a substantial shift in US inventories, with a sharp decline seemingly paving the way for an easier meeting next week.

For the most part, markets are expecting to see OPEC+ extend the current levels of output for another six months, bringing a potential boost to prices. We have also seen Iranian outputs stifled amid a ramp-up in US sanctions. That shift in US inventories, coupled with expectations of an OPEC deal and falling Iranian output has amounted to a welcome boost for oil prices.

Charting crude prices

The weekly chart below highlights the upward shift for the stochastic oscillator, following up on bullish divergence seen in April. We are into our third week of gains over the course of the last month, with further upside looking likely to build on this recent rebound. Much will come down to what OPEC manage to do, with a failure to extend production at depressed levels likely to lead prices heavily lower.

Looking at the four-hour chart, we can see a clear and consistent uptrend over the past fortnight, with the current sideways consolidation likely to lead towards further upside. With Brent prices rising back towards the $66.04 level, a break through there would likely lead into another leg higher from here. Conversely, a decline below the $63.54 swing low would bring about a more bearish wider view.