​​​​OPEC+ meeting preview: crude primed for big breakout​​​​

Saudi Arabia and US switch roles

Crude oil has seen a huge rise in volatility of late, with US President Donald Trump helping to spark an extreme surge in prices at the prospect of an impending production cut between the Organisation of the Petroleum Exporting Countries (OPEC) and Russia. The initial breakdown in relations between Saudi Arabia and Russia over a 1.5 million barrels per day (bpd) production cut ultimately saw both sides ramp up output in a war of oil prices. This led to a curious situation where the normally supportive Saudi Arabians were driving oil prices down to a point where US producers were completely undercut.

This impact on US producers simultaneously flipped Donald Trump’s position from seeking lower oil prices to desperately intervening to drive them up once again.

There is no doubt that everyone involved in the supply of oil would prefer prices to be higher than they currently are. However, we are finally seeing an end to the environment where global producers benefit from the elevated prices caused by OPEC+ actions. With that in mind, the meeting between OPEC and G20 nations this week will likely provide a significant amount of volatility given that it will provide markets with an idea over whether we will move into an environment where price manipulation is undertaken by Western oil producers alongside OPEC.

What to watch for at OPEC+/G20 meeting

The first thing traders will be keen to see is whether a deal has been agreed, which is far from guaranteed. Despite talk of a verbal deal between Russia and Saudi Arabia, the key element that could drive Russian involvement is the ability to drive down output in the US. Given the independent nature of US oil production, this could mean including major drilling companies in discussions.

The second most important element to watch out for will be the size of any agreed cut, with Donald Trump’s claim of a potential 15 million bpd cut setting a high bar to overcome. With crude having spiked sharply on the prospect of a 10 million-15 million bpd cut, anything below this level would be deemed a failure.

Brent turning higher from key support

The Brent chart below shows how we have seen wide 6% swings throughout the week, as price respects a $32.34-$34.52 range. That looks likely to hold for now, with price starting to turn higher from the lower echelons of that range. This range is going to be a clear-cut zone which needs to be broken to provide a fresh directional bias.

More specifically, a breakout from this zone in reaction to the OPEC+ announcement would carry more weight in signaling where we go from here.