The so-called OPEC+ group of oil producers, which includes the traditional players in the oil cartel as well as non-OPEC countries such as Russia, look set to agree on cutting oil production to help shore up prices, defying calls from US President Donald Trump to leave output unchanged and keep prices low. The OPEC is meeting in Vienna today ahead of a summit with oil producers outside of the cartel (i.e. OPEC+) on Friday. Oil prices have fallen sharply nevertheless amid concerns the potential cuts could be lower than expected, with a barrel of Brent oil costing about 4% lower at $59.00.

Judging by the incoming remarks from several OPEC ministers, it is not a question of whether the cartel will decide to cut supplies or not, but by how much. They are fully aware of the risks of another severe supply glut developing if they take no action. OPEC countries simply cannot afford to see another 2014-style slump in oil prices after a near 30% plunge over the past couple of months.

It is understood that Saudi Arabia wants the OPEC to reduce output by around 1 million barrels per day, but this is dependent on how big the supply reduction from Russia will be - if any. The OEPC, already losing market share to the US shale oil producers, will not want Russia to gain further advantage at its expense. If Russia were to cut its production by, say, 250,000 bpd, which is likely in our view, then the total supply reduction from the OPEC+ group could be around 1.3 million bpd.

The problem for the OPEC is that it’s de facto leader, Saudi, is facing significant pressure from the US, its key western ally, not to cut oil production. Yesterday, the US President tweeted: “Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!” But just like the US is pursuing its own interests, one cannot expect Saudi to do anything different - even despite the controversy surrounding the killing of journalist Jamal Khashoggi in Istanbul at the Saudi embassy.

So, this might mean a mere conservative cut in crude output – a middle ground that is not too disappointing in the eyes of participants in the oil market, yet not too severe to prompt angry reaction from Washington.

Indeed, oil prices fell sharply on Thursday morning when Al-Falih, Saudi’s energy minister, signalled that the production cut could be less than expected. He said an output cut of 1 million bpd could be sufficient, contradicting his previous assessment of 1.3 million bpd. But, as mentioned, a total of 1.3 million bpd cut could nonetheless be agreed upon from the OPEC+ group.

If the total output cut is indeed around 1.3m bpd, I think Brent oil prices will probably not fall too much further, given the 4% or so drop on Thursday in response to the rumours, with $55 being a potential level where it might bounce from. If the cut is larger than that then prices could certainly bounce back – the extent of which will depend on the size of the cut. And it is probably safe to say that a failure to reach a deal could see Brent oil prices plunge towards the low $50s almost immediately.

Figure 1:


Source: TradingView and Please note, this product is not available to US clients

Risk Warning Notice Foreign Exchange and CFD trading are high risk and not suitable for everyone. You should carefully consider your investment objectives, level of experience and risk appetite before making a decision to trade with us. Most importantly, do not invest money you cannot afford to lose. There is considerable exposure to risk in any off-exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of the markets that you are trading. Margin and leverage To open a leveraged CFD or forex trade you will need to deposit money with us as margin. Margin is typically a relatively small proportion of the overall contract value. For example a contract trading on leverage of 100:1 will require margin of just 1% of the contract value. This means that a small price movement in the underlying will result in large movement in the value of your trade – this can work in your favour, or result in substantial losses. Your may lose your initial deposit and be required to deposit additional margin in order to maintain your position. If you fail to meet any margin requirement your position will be liquidated and you will be responsible for any resulting losses.

Analysis feed

Latest Forex Analysis

Editors’ Picks

GBP/USD: Recovery falters just shy of 1.3400 ahead of UK PMIs

GBP/USD recovers nearly 90-pips from Friday’s NY low of 1.3306 but faces stiff resistance at 1.3400. Brexit optimism to keep the sentiment lifted around the pound. The focus remains on the UK Markit Preliminary PMIs ahead of BOE.


EUR/USD: Inverted hammer on D1, flash PMIs eyed

EUR/USD created a bearish inverted hammer candle on Friday, establishing 1.12 as key resistance. A bearish hammer reversal would be confirmed if the spot closes Monday below 1.1102. Better-than-expected German PMI is needed to avoid a bearish close.


Week Ahead – Phase-one trade deal and UK election aftermath

The US dollar remains at a critical juncture as Fed policy will be on hold for the foreseeable future and as we start to see an economic rebound come out of Europe. The world’s largest and strongest economy is likely to start to see economic growth slow in the fourth quarter.

Read more

Gold: Flatlined after the biggest weekly gain since September

Gold is lacking a clear directional bias in Asia, having eked out its biggest weekly gain in nearly three months. The yellow metal is currently trading at $1,474 per Oz, representing little or no change on the day.

Gold News

USD/JPY sidelined below 109.50 amid lack of clarity on trade deal

USD/JPY continues to trade in a flat line below mid-109s, as investors await some clarity on the US-China Phase One trade deal, especially amidst caution over the deal’s details. 


Forex Majors