Crude oil price rose today after a successful virtual meeting by OPEC members and its allies. In the meeting, the members agreed to continue with their 10 million barrels a day supply cuts in a bid to stabilize the market. Brent, the global benchmark rose to $43 while West Texas Intermediate (WTI) rose by 0.86% to $40 a barrel.
OPEC+ agrees on supply cuts
Last week, the price of crude oil was in an upward trend but found some resistance on Wednesday. That happened after Blomberg reported friction between Saudi Arabia and Russia with Iraq and several countries that were not complying with the cuts. On Friday, the two sides reached an agreement that will see Iraq start complying and compensate for its incompliance.
On Saturday, in a virtual meeting, OPEC+ leaders agreed to continue with their supply cuts, which they believe are working. The countries will now slash 9.6 million barrels in July. It will be less than 100,000 barrels because Mexico will end its constraints. A country that won’t meet the targets will need to compensate from July to September.
The challenge for OPEC+
The biggest challenge for OPEC+ is that the surging crude oil price will incentivize United States producers to reopen their rigs. This is because most companies will now start making a profit as price rise. As a result, this will reverse the falling oil rig count. According to Baker Hughes, rig count in the United States declined by 17 last week to the current 284. Around the world, active rig counts dropped by 110 to 805.
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Brent Crude oil price technical outlook
Brent crude oil rallied to an intraday high of above $43. On the daily chart, the price is a few inches below the important 50% Fibonacci retracement level. It is also above the 50-day and 100-day exponential moving averages. The RSI, which is an important measure of overbought and oversold conditions, has moved to the most overbought level since April 2019. This means that while bulls may continue pushing the price lower.
On the flip side, a move above the 50% retracement will likely see bulls attempt to move to the 61.8% retracement at $50.
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