Crude Soars As Output Cuts Extended To Year End

Oil prices rose almost $2 on the news that Saudi Arabia and Russia would extend their output cuts to the end of the year. Prices finished over a percent higher to be up 3.7% already this month. The USD index rose 0.5%.

• WTI rose 1.4% to finish at $86.74/bbl. It was trading around $85.50 before the announcement and then reached an intraday high of $88.07 but couldn’t hold the break above $88. It has started Wednesday steady at $86.79. Round-number resistance at $90 has now been opened up.
• Brent is up 1.2% to $90.08. It was trading around $88.50 and then broke $91 to make a high of $91.15. This has opened up resistance at $92.91. Relative strength indicators are signalling that Brent is overbought.
• Russia and Saudi Arabia were expected to extend production cuts to October and so the announcement to the end of the year was a surprise. Saudi’s 1mbd cut and Russia’s 300kbd will be held now for at least 6 months. Goldman estimates that the cuts have resulted in a deficit of 2.3mbd in Q3.
• Higher oil prices are pushed some August headline CPI measures higher through the fuel component, which will be a concern for central banks if it persists and there are second round effects.