What’s Happening?

OPEC is meeting on Thursday May 25 to decide whether to extend the production cuts that have been in place for the last six months. Heading into this meeting, WTI oil has been on a tear, recently testing the $50.00 level. What comes out of the meeting including whether or not non-OPEC countries like Russia agree, could have a major impact on oil trading through the week. US weekly inventories due before the meeting may also attract attention.

Technicals:

For most of the last six months, WTI has been swinging back and forth in a channel between $45.00 and $55.00 give or take. A dip down toward $43.50 was short lived and ended up forming a bear trap bottom, and since then, oil has been under renewed accumulation.

In recent weeks, WTI has been steadily rising, regaining $47.70 a Fibonacci level, retaking its 50 and 200-day averages and advancing on $50.00. Next upside resistance appears near $51.00.

RSI regaining 50 and continuing to rise indicates that momentum has turned upward and is accelerating.

How WTI acts after the meeting may depend on what expectations get priced in ahead of the meeting. If the pre-meeting rally continues, it could set the stage for disappointment or profit-taking afterward.  It's possible we could see either end of the broader channel this week.

Fundamentals:

Earlier this month, the baseline street expectation was that OPEC would agree to a six month extension to November 2017. Recently comments from Saudi Arabia, Russia and others have suggested that cuts could be extended for nine months or possibly even longer. Additionally, there have been reports that additional production cuts may be possible.

The previous round of cuts has worked well in supporting the oil price above $40.00. The problem, however, is that the higher price has encouraged increased US shale production, ceding OPEC market share to the US, the problem that started the supplier war back in 2014.

The goal of deeper cuts would be to accelerate the process of bringing the global market back into balance. US API and DOE inventories may indicate whether the US market is continuing to come back into balance following a winter of big inventory builds.