Oil Tries To Settle Above The $46 Level

Oil Video 04.12.20.

OPEC+ Managed To Reach A Deal On Production Cuts

Oil gained upside momentum after OPEC+ announced that it would increase production by 500,000 barrels per day (bpd) in January 2021. The original plan was to increase production by 2 million bpd.

In addition, OPEC+ will meet on a monthly basis to discuss the situation in the oil market and make adjustments to quotas. This means that OPEC+ production can get a major boost in February if demand is robust or stay at the same level if demand remains weak.

At this point, the most likely scenario is a step-by-step production increase until April 2021.

Obviously, traders would have preferred to hear about a three-month extension of current production cuts. However, vaccine optimism is strong, so any reasonable deal from OPEC+ could have served as a bullish catalyst.

The new deal looks like a reasonable compromise between the desire to increase production when oil prices are moving higher and the necessity to support the market at a time when demand is under pressure due to the second wave of the virus.

In addition, OPEC+ has once again signaled that it can overcome internal difficulties and come up with a viable solution to the problems of the market.

Oil Looks Ready To Continue Its Upside Move

Now that the market has learned about OPEC+ decision, oil price dynamics will be impacted by other catalysts. These catalysts include inventory levels, vaccine news and coronavirus.

Yesterday, the U.S. reported a record number of new cases of the disease. The recent data indicates that the virus continues to spread actively which may ultimately lead to introduction of additional virus containment measures and hurt demand for oil.

In recent weeks, oil traders have completely ignored all negative developments on the coronavirus front as they were focused on positive vaccine news. In addition, the U.S. may be moving closer to the introduction of a new stimulus package, which will also provide support to the oil market. In this situation, oil is set to continue its upside move unless the market’s focus shifts to current problems on the virus front.

For a look at all of today’s economic events, check out our economic calendar.