Oil Prices Consolidate, Eying Thursday’s OPEC Meeting

An asset that once traded below zero, Oil was one of the most affected instruments during the initial stages of the Covid-19 pandemic. Nowadays, it has recovered to much healthier levels as global demand begins to bounce back up and as the world continues its journey towards eliminating the virus.
Overextended prices are part of the story
After reaching close to the psychologically significant 70.00 level, market players began unwinding positions as the technical setup hinted at a broad profit-taking episode. As certain signs began to emerge such as sell-focused price action or technically significant targets, traders will quickly look to secure profits and close positions while waiting for new bargains in the near term.
Despite the repositioning, the trend remains intact as Oil bounced from the 30s late last year to current levels in the 60s, a gain of almost 100% and a healthy environment for more, given the improved global demand and the technical outlook.
Short and long term fundamentals weigh in
Beyond the technical drop, fundamentals played a role as renewed Covid concerns across Europe quickly overshadowed a blocked Suez Canal. As Vaccine controversy remains high and new lockdowns being announced, the continent is struggling with keeping the pandemic in check. This gave traders more reasons not to position themselves towards further upside just yet while locking in profits for now.
Furthermore, supply curbs by OPEC are likely to continue given the ongoing demand worries plaguing the world. Yes, Oil prices did rebound from pre-Covid levels but there is a certain lack of consistency in demand driven by uncertainty which kept OPEC proactive about production. This is likely to keep prices in check for now until the next meeting set in early April.
What’s next for Oil?
While the world is heading towards more vaccines being administered, new lockdowns such as the ones renewing in Europe could very much lower demand while OPEC’s view on supply creation could also change unexpectedly. Nonetheless, and unless seismic fundamental shifts take place, both sides of the analysis spectrum are relatively in sync for more gains, albeit likely limited in nature given the relatively overdone move that manifested itself already.
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