Orbex Market Flash
Oil Higher As OPEC & Allies Agree Production Cut Of Over 1 Million BPD To Begin In January
The recent OPEC meeting which kicked off in Vienna in the back end of last week ended over the weekend with some positive news for crude bulls.
The fifteen-member oil-producing cartel along with non-OPEC allies, led by Russia, announced plans to slash oil production by over one million barrels per day. The cuts are due to begin in January 2019 and last six months.
The announcement comes on the back of huge pressure following the roughly 30% decline in prices over the last two months. The declines have come amidst a backdrop of weaker demand forecasts and a record surge in US crude production which recently saw US crude oil stockpiles rising for eight consecutive weeks.
In terms of the breakdown of the cuts, OPEC has said that its members will reduce production by a combined 800k barrels per day. Furthermore, OPEC allies, led by Russia, have agreed on a combined cut of around 400k barrels.
Market Sceptical About Implementation
While the news is obviously a positive sign, the market is more likely to adopt a wait-and-see approach instead of seeing an immediate increase in crude demand. OPEC has a troubled history when it comes to obedience to such cuts, and the market is wary of the likelihood that the actual cuts will not be as much as currently forecast.
News of the planned cuts has been met with relief by the market, reflected in the initial spike higher in crude prices. However, crude is still sitting at the very bottom of a significantly sharp sell-off, and there is plenty of work to be done in order to establish a shift in momentum.
If prices fall back below the 50.96 level support, the next major support zone is down at 40.48 – 42.25 where we have a raft of prior swing lows offering structural support as well as the completion of a large corrective symmetry pattern. To the topside, the 55.59 level is the first key resistance with the retest of the broken bullish trend line from 2016 lows just above.