Crude oil enjoyed its pullback rally since morning, following the OPEC+. On Sunday OPEC+ meeting, Saudi Arabia said it would cut production by about 1 million barrels per day (bpd) in July to 9 million bpd. This is in addition to the at least 3.66 million bpd of cuts that OPEC+ has rolled out since October 2022. It was decided that it would be extended till the end-2024 from the end-2023 during Sunday’s meeting.
Oil prices traded with a 0.80% gain after Saudi Arabia pledged deep production cuts in July, while the Organization of Petroleum Exporting Countries and Allies agreed to extend supply cuts into 2024.
Additionally, the company decided to cut its overall output goals by 1.4 million bpd beginning in January 2024. However, the majority of these cuts will align Russia, Nigeria, and Angola’s output targets with actual present production levels.
The action is being taken as the oil cartel works to raise crude prices and keep the value of its primary export steady. Saudi Arabia also wants to discourage speculators from making bets against the price of crude. That has seen a substantial increase in short interest this year.
Brent oil futures rose by 0.92% to $76.91 a barrel, while West Texas Intermediate crude futures rose 1.10% to $72.60 a barrel. Both contracts were still trading down between 6% and 8% for the year.
The OPEC+ cuts were taken as fears of slowing economic growth and weak demand battered oil prices this year. With the price of crude falling for five months in a row. As markets worried about a probable U.S. output increase, the cartel’s unexpected production cut in April gave oil prices a modest lift. And as weak economic readings from China cast doubts over a recovery in demand this year.
Yesterday’s cuts now herald tighter oil markets in the second half of 2023 and could keep prices relatively supported, even as economic conditions deteriorate and interest rates rise.
Technical Outlook
Crude oil prices witnessed a sharp pullback from the low of 5567 and recovered more than 4%. Prices found support from the low of 4 May 2023. On Friday, gained 1.51% and settled at 5916.00
The recent price action resulted in the formation of a long bullish candle stick. Further, RSI 14 and 9 SMA also give a positive crossover.
Adding to this, Prices breached their first immediate resistance 5865, which coincided with a 23.6% Fibonacci Retracement. Which is creating a probability for an upwards move towards the next resistance 6050-6185.00.
Hence, today’s prices may witness a gap opening, after that prices may trade positively. However, upside momentum could be limited towards 6210.00, and prices may struggle to hold above it.
Only a closing above 6210 would extend the further gain else prices may retreat from it. And will retest towards 5980-5900 in the near future.
To a series of weak economic numbers from China, the Eurozone in last week. And Fed rate hike jitters could keep prices limited. U.S. interest rates are also expected to stay higher for longer. Especially given that through May, nonfarm payrolls expanded faster than anticipated.