U.S. West Texas Intermediate and international-benchmark Brent crude oil are trading higher early Friday after the OPEC-led group agreed to extend their
U.S. West Texas Intermediate and international-benchmark Brent crude oil are trading higher early Friday after the OPEC-led group agreed to extend their production cuts in a widely expected move designed to trim the supply glut and stabilize prices.
At 0842 GMT, January WTI crude oil is trading $57.65, up $0.26 or +0.44% and February Brent crude oil is at $63.01, up $0.38 or +0.61%.
OPEC and non-OPEC producers led by Russia on Thursday agreed to continue the production cuts until the end of 2018, while also signaling a possible early exit from the deal if the market overheats.
WTI and Brent crude oil are reacting as if the OPEC news had been fully-priced into the market. The WTI futures contract is holding above a key area at $57.03 to $56.55, indicating the presence of buyers. A sustained move $57.03 will be bullish, a sustained move under $56.55 will be bearish over the near-term.
Brent futures could turn bullish over the near-term on a sustained move over $63.11. However, a sustained move under $62.71 will indicate the return of sellers.
According to Kiyoshi Homma, a director at Japanese refiner Idemitsu Kosan, “Oil prices are likely to hover around current levels till next June, when stockpiles would be optimized through continued production cuts, but the market will likely tighten after that.”
Goldman Sachs said, OPEC is showing “a strong commitment to normalizing inventories and also to remain data dependent, which reduces the risk of both unexpected supply surprises and excess stock draws.”
The OPEC news is friendly, but issues remain over increasing U.S. production. This is likely to cap gains. Last week, U.S. oil production hit a new record of 9.68 million barrels per day. The combination of these two events is likely to hold prices in a range with most traders being cautious about playing either side of the market too aggressively.
Now it’s up to the hedge funds. They are sitting on large long positions. Now that the OPEC news is out, the question remains whether they will continue to maintain their long-term bullish outlook or start trimming positions by taking profits.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.