How Much Higher Could WTI Go In The Short Term?
Antonio Ferlito | Nov 30, 2020 12:32
Bloomberg reports that Opec + members, who met informally yesterday, could not find an agreement on the production regime. There is a risk that the official meeting will open without a majority proposal. The request to postpone the exit from the emergency phase program did not go through.
Meanwhile, brokers updated their views. According to Goldman Sachs (NYSE:GS) economists, oil prices will rise to 65 usd a barrel next year, when we will see a vaccine-driven rebalancing of supply and demand.
However, the market will face a short-term decline in demand in Europe due to the spread of lockdowns, they specified in a note published on Nov. 29. The second wave is expected to cause a 3 million barrels per day imbalance in global oil demand, which will only be partially offset by rising demand for warming and replenishment of inventories.
This mixed scenario is likely to keep prices volatile in the coming weeks, complicating OPEC + decisions. If the cuts are not extended, Goldman concludes, there would be a drop of $ 5/barrel from current levels.
Graphically, the WTI recently reversed to the downside from the 46.00 usd area. At the moment of writing, it’s down by 1.25% at 44.85 usd, recovering from the intraday lows.
The price moves below the daily SMA and pivot; we are in line with the POC at 44.72 usd.
The instrument has not touched its weekly average since Nov. 13: the SMA is now at 48.30 usd, in confluence with the high from August.
With a return below 44.50 usd, given the uncertainty on the outcome of the OPEC + meeting, we expect a continuation of the pull-back towards 43.80 usd. Further losses could follow the waiver to extend the cuts. We see the active correction as an opportunity to buy on weakness.
In the opposite direction, upon confirmation of the cuts, a break-out of the 46.50 usd threshold would trigger purchases on the strength, in view of a continuation towards the next buy target at 48.50 usd (potential 8% upside from current levels).
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