The WTI oil surged more than 5% Monday, resulting in further buying on Tuesday, pushing the price 3% higher and sending it above the critical 85 USD level.
OPEC meeting looms
At their first in-person meeting since 2020 on Wednesday, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, often known as OPEC+, are anticipated to reduce production by more than 1 million barrels per day.
According to OPEC sources, this might be followed by more voluntary cutbacks made by individual members, making it the biggest decrease since the COVID-19 outbreak began.
"We expect a substantial cut to be made, which will not only help to tighten the physical fundamentals but sends an important signal to the market," Fitch Solutions said in a note.
Furthermore, several positive factors, including "recovering Chinese demand, OPEC+ further supply cut, the end of the US Strategic Petroleum Reserve (SPR) release, and the impending EU ban on Russian crude exports," were identified by the Swiss bank UBS as potential drivers of higher crude prices as we approach the end of the year.
Moreover, according to economists and researchers from the major dealers speaking at the Argus European Crude Conference in Geneva, oil consumption has surpassed expectations in recent months. It hasn't been much destroyed by supply, as had been anticipated.
“All the different factors suggest, yes, we may be heading into a slowdown but it will be shorter and shallower than people are expecting,” Saad Rahim, Chief Economist for Trafigura, said at the conference, as carried by Reuters.
Bear market over?
Technically speaking, the 85 USD level seems like a major resistance as previous lows are converged with a medium-term bearish trend line. If oil closes above that level, the downtrend might be over, implying further upside potential.
The next short-term target could be at 88 USD, or possibly the round 90 USD threshold.
On the downside, if sentiment deteriorates, the support is at 85 USD before the demand zone in the 83 USD region.