Crude oil price on both the WTI and Brent oil benchmarks appears to have lost steam in the New York session, as markets express disappointment about the decision to extend output cuts by one month.
Crude oil prices have been on a significant upswing after the lows seen at the end of April 2020, as markets reacted to the initial output cuts. According to the original OPEC + agreement which kicked in on May 1, output was to be cut by 9.7 million barrels per day until the end of June and then would be tapered down to 7.7 million barrels from July till December. An acceleration of the uptick in crude oil price followed talk that Saudi Arabia would push for a minimum extension until the end of August. However, a consensus was reached for an extension to the end of July.
Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, indicated in a Monday news conference that the cuts had “served their purpose.” Brent crude currently trades 0.48% lower at 41.66.
It is possible that the OPEC + alliance did not want to hinge price recovery solely based on an output cut. The drop in price in the first placer was triggered by a near-collapse of demand from China and other net importers as the coronavirus pandemic shut down factory activity. Therefore, it is logical to see whether demand has recovered, and to what extent the markets will react to this demand recovery. This view is in keeping with the latest statements of Alexander Novak, the Russian energy minister.
The shift in focus towards demand (which is yet to recover) may have triggered a mild selloff, as seen on today’s charts. Initial support lies at 41.43, and a breakdown of this support area targets the 38.56 and possibly the 31.69 price levels. Conversely, a pickup in demand, as well as continued drops in US crude stockpiles, could allow for a retest of 44.16, with the possibility of a breakout which targets the 48.33 and possibly the 50.64 price areas.