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Key Takeaways
- WTI oil shed more than 3% on Monday after a complex OPEC+ decision on Sunday left the door open for voluntary cuts to be gradually unwound.
- While the Saudi-led cartel opted to extend most of its production cuts until next year, it also agreed to voluntary cuts from eight members to be gradually unwound from October.
- According to analysts, the agreement to phase out cuts puts downward pressure on oil prices as it gives OPEC+ members considerable leeway to ramp up output depending on market conditions.
- Monitor for a reversal between $71.50 and $67.50, an area where the WTI price finds a zone of support from a series of price action over the past 17 months.
West Texas Intermediate (WTI), a proxy for U.S. oil prices, fell more than 3% to a near-four-month low on Monday as investors fretted over a complex Organization of the Petroleum Exporting Countries and allies (OPEC+) decision on Sunday that left the door open for voluntary cuts to be gradually unwound.
While the Saudi-led cartel opted to extend most of its production cuts, which currently amount to a combined 3.66 million barrels barrels per day, until the end of 2025, it also agreed to voluntary cuts from eight members to be gradually unwound from October.
According to analysts, the agreement to phase out reductions puts downward pressure on oil prices as it gives OPEC+ members considerable leeway to ramp up output depending on market conditions despite sluggish global demand stemming from high interest rates and inflation.
“The communication of a surprisingly detailed default plan to unwind extra cuts makes it harder to maintain low production if the market turns out softer than bullish OPEC expectations,” Goldman Sachs analysts said, according to Reuters.
Looking ahead, investors will gain further insight on the demand side Wednesday when the Energy Information Administration (EIA) releases its weekly petroleum status report that will reveal gasoline consumption over the Memorial Day long weekend—a holiday that marks the start of the U.S. driving season.
“If we do not get a spectacular number on Memorial Day in the U.S., that’s going to be game over,” said Again Capital’s John Kilduff, according to Reuters.
Monitor for Signs of a Reversal in This Key Price Range
The WTI price has remained mostly rangebound since December 2022, with neither the bulls nor bears able to gain the ascendency. More recently, the commodity has broken down from a broadening formation situated just below the 200-day moving average.
Looking ahead, investors should keep an eye on the range between $71.50 and $67.50 amid further declines, an area where the price finds a zone of support from a series of price actions over the past 17 months. If the WTI price enters this chart region, monitor for signs of a reversal, such as a hammer candlestick or bullish engulfing pattern, which could signal a shift in investor sentiment.
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