OPEC+ and Friends finally agree on an oil deal

Oil WTI Technical analysis, overview, strategies, and levels

Oil prices were in for a rude awakening late last week, partially recovering this morning on a deal between the oil majors at last that could involve an output cut reduction of up to 20% of global output during the oil price war, though still failing to balance out against a bigger reduction in demand thanks to the coronavirus.

It’s a record cut, four times the size of that the previous record reduction out of OPEC in 2008 and could involve as many as 23 countries. OPEC+ is expected to reduce output by 9.7m bpd (barrels per day), though when considering the rise in output in April due to the oil price war, that effectively increases that figure to over 12m bpd (and highlighting how much more oil could return to the market should another oil price war erupt). Unconfirmed reports say that for non-OPEC+ countries (including the US, Canada, Norway, Indonesia and Brazil) the contribution would be 4-5m bpd to the output cut, and IEA may announce purchases of up to 3m bpd over the next couple of months to take additional supply off the market.

The figure should drop to 8m bpd thereafter until the end of this year, and 6m bpd until April of 2022, highlighting the extent to which the deal is expected to remain in place, and the difficulty from a compliance standpoint in keeping this many countries from violating the agreement just as government deficits get severely tested.

In oil data, last week’s Baker Hughes US oil rig count showed another successive big drop, to 504 from 562 prior as more higher cost rigs get idled due to what has been persistent lower oil prices. With an oil deal now agreed upon, the question mark will remain the effects of the coronavirus on the economy and the ongoing increase in cases that might extend lockdowns, and in turn dent demand for the energy commodity.

IG client* and CoT sentiment for Oil WTI

As for trader bias, retail sentiment is in extreme long territory as fresh shorts were enticed into closing out on the price drop, while CoT traders have increased their long bias back into extreme long territory at 79%.

Oil WTI chart with retail and institutional sentiment

*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am.

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