Crude Holds Onto Gains Following OPEC+ Decision

Oil prices closed over 6% higher after OPEC+’s unexpected decision to cut output 1.1mbd and for Russia to extend its reduction to year end. Even disappointing US ISM data didn’t dent them. Brent is around $84.93/bbl while WTI closed at $80.42. The USD index is down 0.4%.

• Brent rose 6.3% on Monday and reached an intraday high of $86.44 before easing to $83.50. It broke through the 50-, 100- and 200-day moving averages and the March 7 high. If bullish momentum picks up, then the next key level to watch is $88.35, the January 23 high.
• WTI was up 6.3% after an intraday high of $81.69 and low of $79. It also breached key moving average levels. A clear break of $81.04 would signal scope for a move higher and open $83.04.
• The US reaction to OPEC+’s announcement has been unfavourable. The US government told Saudi Arabia that it disagreed with the decision but President Biden has said that the move is not as bad as it looks. Yellen commented that it is an “unconstructive act”.
• US oil producers are unlikely to fill the gap left by OPEC+, as they have a shortage of suitable wells and skilled staff. There is also more supply discipline on the shale side now and US output is only half what it was pre-pandemic. They are expected to increase output only 500kbd this year. Analysts believe that it is this discipline that has emboldened OPEC+ to cut output as they are not afraid of losing market share.