Crude Oil Prices Spike as Saudis announce Big Output Cuts
Crude oil prices were sent shooting higher earlier in the session when the Saudi’s unexpectedly announced a further 1mln BPD in crude oil output cuts, on top of the 3.8mln BPD in cuts agreed as part of the most recent OPEC+ pact.
This means the Saudis will be cutting production by 4.8mln BPD from April levels to just under 7.5mln BPD in June. That's a lot of oil for one country to take off the market!
WTI crude shot higher to briefly above the $25.50 mark from around $24 on the news, while Brent saw a similar move from $30 to above $31.
Over the next hour, much of the move was paired back as concerns grew that the Saudi output cut was only designed to offset poor compliance from the Iraqis (who were supposed to cut output by 1mln BPD). Moreover, it was unclear from the announcement as to whether these cuts would last beyond June… a one-off cut would certainly mean less market impact!
However, news soon broke that the Saudis would not be going the voluntary cuts alone; the UAE quickly announced that they would also be slashing output by some 100k BPD. Moreover, Kuwait will cut output by a further 80k BPD.
On this news, WTI perked back up a little and has since been trading either side of the $25 mark.
It will be worth being on the lookout for more voluntary cuts from major oil producers. Perhaps OPEC members might be able to take a further 300k BPD offline. I wouldn't expect much from Russia or the US to partake though (the two are usually locked in a battle for market share).
Looking at the crude oil market more broadly, the news of further output cuts adds to the list of reasons to be more positive on the outlook for crude prices now that the worst of the Covid-19 crisis is over (we hope).
We are fast approaching June, a month during which big global supply cuts take effect. Meanwhile, much of the world is reopening their economies as Covid-19 curves flatten, meaning increased fuel demand.
Should crude remain supported in the near future, this will be good for the likes of CAD and NOK.
Please see below technical charts/points from Ken:
Price action via the weekly chart view has further extended to the north, following a bullish reversal hammer candle, as produced in the week of 27 April. The next major weekly resistance is viewable at $29.00.
4-hour price action has formed a possible bullish pennant structure, as the price narrows, subject to a breakout higher, as long as the buyers capitalize on this pattern.
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