GAS/OIL Analysis: OPEC+ decision on cutting production may depend on scale of coronavirus epidemic

February 5, 2020

By IFCMarkets

OPEC + decision on cutting production may depend on the scale of the coronavirus epidemic

On the daily timeframe, the GAS/OIL: D1 breached up the resistance line of the downtrend and is correcting up. A number of technical analysis indicators formed buy signals.

The bullish momentum may develop in case GAS/OIL rises above the two fractal highs and the upper Bollinger band at 0.677. This level may serve as an entry point. The initial stop loss may be placed below the two last fractal lows, the low since September 2012, the lower Bollinger band and the Parabolic signal at 0.547. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop level (0.547) without reaching the order (0.677), we recommend closing the position: the market sustains internal changes that were not taken into account.

In this review, we suggest considering the personal composite instrument (PCI) &GAS/OIL. It reflects the price change dynamics of the US natural gas against the US light crude oil West Texas Intermediate (WTI). Will the GAS/OIL rise?


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Their increase means that natural gas is in higher demand than oil. US gas demand may increase due to forecasts of the cold snap in mid-February. It is widely used for heating. Natural gas prices have been near a 4-year low for almost 2 weeks, a correction is possible. Since the beginning of the heating season in November 2019, the price of gas has fallen by 37%. Liquefied natural gas exports from the US are now near a historical high of 9.5 billion cubic feet per day. This is three and a half times more than the last year’s level. In turn, the cost of oil has fallen significantly amid the coronavirus epidemic in China. It is assumed that this will reduce global demand for fuel in the first quarter of 2020 in the amount of 250 to 500 thousand barrels per day because of reduced economic activity. OPEC countries are discussing an additional reduction in production with the aim of supporting oil prices. However, according to some signs, the coronavirus epidemic is likely to end, and such a reduction is in doubt. The meeting of OPEC ministers will be held on February 14-15. Before this, the OPEC Joint Technical Committee (JTC) meeting will be held on February 4-5.

 

Indicator VALUE Signal
RSI Buy
MACD Buy
Parabolic SAR Buy
MA(200) Neutral
Bollinger Bands Buy

 

Summary of technical analysis

Order Buy
Buy stop Above 0.677
Stop loss Below 0.547

Market Analysis provided by IFCMarkets