Crude oil prices retreated from their intraday highs at the wake of the announcement from OPEC+ (Organization of Petroleum Exporting Countries). After opening at $58.25, WTI crude traded higher to $59.04. However, during the New York session, the commodity tracked lower and finished the day unchanged.
Crude Oil Prices Unchanged on Higher-Than-Expected Production Cuts
Yesterday, the cartel announced that they would cut back oil production by 500,000 barrels per day. This was more than what markets anticipated. It was initially reported that OPEC+ member countries would only reduce 300,000 barrels per day in an effort to keep crude oil prices higher as other producers pump out more oil. This means that OPEC+ will reduce their production by 1.7 million barrels per day until March 2020 from 1.2 million barrels per day.
Currently, the cartel produces 29.7 million barrels per day which amounts to about 30% of global production. This is roughly 2.6 million barrels per day lower than its output from a year ago. Despite this, the reductions have done little to boost the price of crude oil. The United States, which is not part of the cartel, has been steadily contributing to supply.
OPEC+ Credibility to be Put to the Test
According to analysts, the muted response on crude oil prices yesterday is due to the lack of credibility by the cartel. Russia, along with Iraq and Nigeria, have been widely known to cheat on the agreed cuts and have produced more than what has been agreed. Now it seems that markets are waiting to see how well member countries will follow the required production cuts.
Yesterday’s candlestick closed as a doji. This is how you would technically describe the appearance of a candlestick without a body because the open and close price is the same. It could be a bearish indicator especially since the dji materialized at a resistance level around $58.40.
The hourly chart also shows what looks like a head and shoulders chart pattern. In forex trading, this is also considered as a bearish indicator with the market making higher highs and followed by a lower high.
A strong bearish close below the neckline support around yesterday’s lows at $58.02 could mean that crude oil prices may soon slide to $55.81. This is where the bottom of the rising channel on the daily chart seems to coincide.
On the other hand, the official announcement from OPEC+ could have a bullish effect on crude oil prices and push WTI crude to the top of the channel around $59.70.Download our latest quarterly market outlookfor our longer-term trade ideas.
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