Oil prices have recovered significantly by more than 6% since the beginning of the week, after reaching their lowest level in nearly 15 months, as markets hope to deepen production cuts by oil producers or OPEC+ when they meet on Thursday, as well as expectations that central banks will have stimulus policies to counter the impact on their economies due to the outbreak of the Coronavirus since the end of last year.
U.S. crude prices rose from lows of $43.58 at the beginning of the week to trade at $48.15 per barrel, while Brent rose from $48.91 to trade at $53 per barrel. This rise was the first in six consecutive sessions of decline amid fears that the coronavirus has killed nearly 3,000 people so far.
As concerns about the impact of the virus's spread on oil demand persist, markets are hoping for a new OPEC production cut agreement in the second quarter of the year, as the current agreement expires at the end of March, and there was an earlier proposal to deepen an additional 600,000 barrels per day, there is a study of a larger reduction of possibly as many as 1 million barrels per day.
OPEC production fell in February to a 10-year low, as Libyan supply collapsed due to the blockade of ports and oil fields, besides Saudi Arabia and a number of Gulf Arab countries drastically reduced production, and oil prices have fallen by more than 20% since the beginning of the year despite OPEC's actual production cut by 1.7 million barrels per day.
Saudi Arabia has voluntarily reduced production by 400,000 barrels per day, bringing the total reduction to about 2.1 million barrels per day. Lukoil believes that the proposal to cut production by an additional 1 million barrels would be enough to push prices back to $60 levels.
Also, G7 finance ministers are also discussing the impact of the spread of the Coronavirus, which has hit oil demand, in more than 60 countries on global economic growth.
Technically, the $49.60/50.60 levels will be the first price resistance areas for U.S. crude, and prices may reach those levels before Thursday's meeting, while for Brent crude it is currently experiencing a broken bottom at $53 and the next resistance level will be at $55.