OPEC Cutback Extension Deal or Not, Market is in "Technical Breakdown" and Oil Will Trade at $40 Next Month: Analyst

The end of yet another dismal week for oil was capped by even more dire prognostications for what lies ahead, triggered by the very thing intended to bring about market stability: this weekend's meeting of Organization of the Petroleum Exporting Countries (OPEC) members and some non-members, to discuss compliance and perhaps a six-month extension of their production cutback initiative.

Bill Baruch, chief market strategist at IITrader, told Bloomberg that we're currently witnessing "a technical breakdown of the oil market, with fundamentals pushing it lower," and he predicts that oil will trade at $40 within weeks.

He added, "Yes, there is an OPEC meeting this weekend, and they can jawbone a bit to support prices, but I don't see much coming out of that... and if we start closing below $47.50, there's a lot of room to go down to $40."

Baruch, who admits to becoming "more bearish by the day," went on to note that if OPEC considers an extension and then fails to deliver, "that would be catastrophic for the market......we've seen a very marginal decrease in record longs....if this market starts closing below $47...we're going to see lots of liquidation."

That said, Barush offered no clear idea of when the market would stabilize, and he suggested that even if OPEC were to extend its reductions for the rest of 2017, the rise in U.S. shale production alone would wipe out most of its gains:  "The U.S. has already taken up two thirds of the OPEC cuts with the remainder of 2017 left."

In stating that crude will trade at $40 in April, Barush thinks shale producers will "be active until $35."

Amrita Sen, chief oil analyst for Energy Aspects, was more optimistic when she told Bloomberg that OPEC pushed an additional 1.5 million barrelsper day of production late into last year prior to the cutbacks taking place, and this is causing the current market woes: "This is nothing to do with the cuts not working; you're going to start seeing the effect of the cuts pretty much next week onward in the U.S."

Sen believes a cutback extension could propel oil above $60 and will indeed happen, partly because so many members need higher oil prices to prop up their failing economies.

Sen's sentiments dovetail with those of Helima Croft, global head of commodity strategy at RBC, who earlier this week told CNBC, "Do [OPEC members] really want to flirt with the $30s? Is that something that's going to enhance their ability to lead in one of these petrostates?"

Still, no amount of positive opinion can eradicate the gloom coming from the analytical community overall, and the gloom could well deepen depending on the outcome of the weekend OPEC meeting in Kuwait: Gene Marcial, manager market research at Tradition Energy, recently warned that "Without the production cut agreement, I think you could basically target the low-to-mid $30s; I'm of the mind they extend it."