OPEC+ extends record output cuts

Oil WTI Technical analysis, overview, strategies, and levels

Saturday's OPEC+ deal has resulted in an extension in the current record 9.7m bpd (barrel per day) cut until the end of July, the absence of which would have resulted in a drop to 7.7m bpd from July. Furthermore, addressing those who were less compliant, expectations are for them to compensate in the months ahead, which – if those members comply – would result in further output reductions.

OPEC+'s compliance and monitoring meeting (JMMC) is scheduled for June 18 and will meet monthly until December (while the next OPEC+ meeting is scheduled for November 30-December 1). As for the 1.18m bpd of voluntary cuts from Saudi Arabia, UAE, and Kuwait, it is not yet confirmed whether those will extend beyond this month.

Oil prices had already been surging prior to the weekend deal as traders priced in an extension, economies reopened, a risk-on atmosphere in the financial markets, as well as a weaker US dollar in the FX market. However, with most US shale producers holding production costs higher than that of Friday's close, hedging at these levels won't be enticing for the majority just yet. In oil data, the latest Baker Hughes US active oil rig count showed another consecutive drop, down to 206 from 222 the week prior, and expect an eventual (albeit more weakened) increase with oil prices recovering.

The weekend announcement is set to result in a gap on the open, and potentially volatile movement, in line with what has been volatile upside movement that has been aiding conformist breakout strategies. From a technical standpoint, its price is now above all its main short-term moving averages on the weekly chart, but still well below all its main long-term moving averages. Its ADX (Average Directional Movement Index) is showing an ongoing propensity to trend, and a positive DMI (Directional Movement Index) cross occurred last week.

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IG client* and CoT sentiment for Oil WTI

In sentiment, retail bias has jumped into heavy long territory anticipating further price gains, reaching 72% intraweek before dropping to 66% following Friday’s surge that enticed fresh longs initiated earlier in the week into swiftly closing out in profit. Larger speculative traders according to the latest CoT (Commitment of Traders) report continue to hold an extreme long bias holding at 82%, with an increase in short positions outdone by a much larger increase in long positions to keep that percentage bias unchanged from the week before.

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 Friday’s close.