Crude Oil jumps on unexpected OPEC+ output reduction.
FUNDAMENTAL OVERVIEW
To support a market that has dropped this year due to worries about an economic slowdown in the developed world, several of the biggest oil exporters in the world announced a surprise reduction in their production levels on Monday. U.S. oil futures were 5.5% higher at $79.81 per barrel by 09:10 ET (13:10 GMT), and the Brent contract was 5.6% higher at $84.34 per barrel by the same time, marking the biggest daily gain in almost a year.
The Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, announced earlier on Monday that its members would reduce their intended output levels by a combined 1.16 million barrels per day starting in May. The actions could considerably tighten the global supply-demand balance by removing a short-term supply overhang brought on by sluggish demand in the United States, Europe, and China since the year’s beginning.
“OPEC+ has very significant pricing power relative to the past,” Goldman Sachs said, in a note. “Today’s surprise cut is consistent with their new doctrine to act pre-emptively because they can without significant losses in market share.”
Goldman raised its Brent oil forecast to $95 a barrel for December this year from $90 earlier, and to $100 for December 2024 from $95.
That said, “while the cut is bullish from a fundamental point of view, the group will also need to be aware of how the cut is perceived,” said analysts at ING, in a note. “The fact that we are seeing a sizeable supply reduction may suggest to some that OPEC+ is worried about the demand outlook in the current economic environment.”
As the U.S. banking turmoil eases and the Fed’s favorite inflation gauge showed signs of slowing last week, the market may be torn about whether the Fed is set to hike interest rates again in May.
But there’s less debate in Europe, where core inflation rose in March, hitting a record high, figures released last week showed.
“These cuts may be signaling that OPEC+ believes that there are enough recessionary indicators in the market … (and) will further tighten the oil market for the rest of the year and could push prices above $100 per barrel”.
Brent fell last month towards $70 a barrel, the lowest in 15 months, on concerns that a global banking crisis and rising interest rates would hit demand despite lower OPEC oil output in March due to a halt in some of Iraq’s exports.
BRENT CRUDE OIL TECHNICAL ANALYSIS DAILY CHART:
Technical Overview
- Brent Crude Oil is currently trading in up channel.
- Brent Crude Oil is currently trading above all SMA.
- RSI is in buying zone which suggests bullishness and Stochastic suggests up trend.
- Brent Crude Oil; resistance is at 82.94 & its immediate support level is 79.55
HOW TO TRADE BRENT CRUDE OIL
Brent Crude Oil is presently trading in an upward channel, it has broken its previous day’s high, and is now at a zone of resistance; if this zone is broken, a further upside to the next resistance is possible.
