The oil market has come back under pressure this week.
Concerns have resurfaced over the recently proposed 10 million barrel per day production cut drafted last week between OPEC+.
Saudi Arabia and Russia finally put their differences aside and agreed to the cuts. However, these are subject to approval from Mexico.
Mexico Disappoints With Agreed Cuts
Mexico initially showed resistance to the proposal. And, following a tense stand-off between Mexico and Saudi Arabia over the weekend, Mexico finally agreed to the cuts.
However, Mexico has only agreed to cut 100k barrel per day, not the 400k proposed by Saudi Arabia.
As such, the total amount of oil to be withheld from the market by the 23 countries involved will be 9.7 million barrels per day, not the 10 million proposed last week.
The market reacted with disappointment to the news. Initial expectations fuelled by tweets from President Trump indicated potential cuts of as high as 15 million barrels per day.
And, following the Mexico-Saudi Arabia agreement, Trump has been causing controversy with his comments once again.
Trump Causing Confusion on Twitter
Trump tweeted of the news:
Energy Prices Impacting Inflation
Trump was reportedly a key player in helping broker the deal between Mexico and Saudi Arabia so his comments are causing confusion.
Energy industry analysts are so far skeptical that OPEC+ nations will adhere to these new production restrictions.
However, with oil prices so heavily subdued over the last month, there is a growing need to create upward price pressures. The declines in oil are also starting to make themselves known in tier one economic data.
Last week, US CPI fell 0.4% on the month, due mainly to the declines in energy prices. If oil prices don’t start to pick up soon, the US is at a very real risk of falling into a deflationary spiral.
Is Crude Forming A Base Here?
Oil prices have been capped by the 26-level once again this week. However, while price holds above the supporting trend line, the current consolidation could still prove to be a base, allowing for recovery.
However, bulls will need to see price quickly back above the 26-level or risk a deeper drop down to the 17.12 level next.