The Vienne Group agreed to extend its production cut for another nine months
Traders had anticipated the move and had pushed prices up ahead of the meeting
The Organization of Petroleum Exporting Countries, #OPEC, ministers meeting in Vienna produced an agreement to maintain production reduction of 1.8 million barrels per day for another nine months. The so-called Vienne Group, which is OPEC nations plus allied oil producing nations, most notably Russia, made the announcement today.
Last week, Kuwaiti Oil Minister said the 9-month production cut was a done deal. He had said OPEC is committed to restore the balance of the oil market and is not ruling out any option for discussion at the upcoming meeting on Thursday, including considering deeper cuts.
Ahead of the meeting, traders had front-run today’s decision, which did not include a positive surprise. The lack of positive surprises (deeper cuts) prompted a sell-the-news response.
From a #technical standpoint, the reversal in oil comes after its consecutive failed push (on a daily basis) to the $52.00/bbl level, which happened to be the 200-day moving average #MA on the chart (shown in brown). Crude oil made a 2017 high of $55.24 at the start of January, but selling in March pushed the commodity back below its 200-day MA, which happened to be the $52.00 level. Looking at the chart clearly shows the downward trendline resistance. The trendline comes from connecting the highs in January, April and May. Based on the chart, the commodity should see a rebound to the $50 level.
Prices are supported by production cuts from OPEC but have been kept in check by domestic productions. Rig counts in the U.S. have more than doubled in the past 12 months. Canadian rig counts are on the rise too. The Canadian Rig Count rose last week to 85 rigs from last year’s count of 44.
Today’s weakness in oil has weighed on the energy sector. The Energy Select Sector #SPDR #XLE is underperforming the broader averages. At the current price of $66.91, the ETF is down over 1.2%. At that price next support is at $66.16. Resistance is at $67.50. A continued underperformance could impair the broader rally in the S&P 500 (SPX).
The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.