Crude oil breached the $87 per barrel level during yesterday’s session and roamed relatively unobstructed into territory once seen before in November of 2022. Aiding the commodity’s ascent were the expected yet surprising announcements from two of the largest players of the OPEC+ oil cartel alliance, namely Saudi Arabia and Russia, who stated that they will be extending their output production cuts until the end of 2023, causing a major uproar in energy markets.
This report aims to analyse the fundamental drivers influencing WTI’s price action seeks to assess its future outlook and concludes with a technical analysis.
OPEC+ surprises the market with voluntary cut extension
Over the past year or so, leading OPEC+ members have explicitly broadcasted their discontent in regards to the mismatch of crude prices with market fundamentals and have forthrightly pledged to restore price stability of the commodity, taking pre-emptively their roles as gatekeepers. It all started back in October of 2022, The group decided to cut its output supply by 2 million barrels per day throughout 2023, and in the meeting minutes it documented that the group has “the ability to take further measures, if required, to achieve balance and stability in the market” should they observe this divergence growing roots.
And so it began. In April, post the “mini banking crisis” that shook the confidence of the public, the cartel made a comeback and announced additional output cuts of 1.16 million barrels per day, took energy markets by surprise and nudged traders to rush and recalibrate their outlooks for the commodity. In the aftermath of the announcement, crude prices found a floor under their feet and managed to halt the descent, consolidating near the $70 per barrel range. The job was not yet over, however.
The cartel (Saudi Arabia more accurately) reassured its dominance once again in early July, by announcing an additional 2 million barrels of voluntary output cuts until August, citing the “restoring price stability” motto yet for another time and markets took notice. This led to the supercharging of the commodity’s price, rallying from the $70 per barrel range to the $84 range, recording an incredulous 20% in the span of two months.
Aiding the rapid appreciation of WTI’s price was Russia’s synchronized export controls of crude by 500k per day, which restricted further the supply of the commodity in the market and propped bets for higher prices. In August, crude futures retraced their steps to the $79 per barrel range, pressured by grim manufacturing activity data from the US, China and the Eurozone which clouded the horizon and the rally started to fade. But as soon as energy bears started pilling on their short orders, foreseeing the acceleration of the fall to lower ground, both Saudi Arabia and Russia struck again.
The Saudis announced that they will be extending their respective voluntary output cuts until the end of 2023, contrary to wider market expectations that foresaw restrictions coming to an end by September and Russia also extended its voluntary reduction in oil exports by 300,000 bpd until the end of the year. As a result, this led to a surge of positive momentum and led to a sharp upshot of prices by 1.5% to the $87 per barrel range, with crude hitting 10-month highs.
Now, venturing forward, this relentless and unyielding intent from the group to restore price stability in the markets, alongside its clear-cut determination to intervene in the markets by restricting supply at will, without hesitation, has forced traders to start paying attention to every word uttered from their mouths. Citing the “restoring price stability” motto at nauseum and pairing that with output cut extensions, has proven to yield the necessary outcome for the group, hence any future commentary from the cartel is expected to bear significant implications, not only on crude’s price action but also on the perception and subsequent projections of traders about crude.
技术分析
WTI Cash H4
Looking at the WTI Daily chart we observe that crude prices have managed to bounce sharply higher from their brief retracement around the $81.50 (S2) level near the end of August, breaking past the 84.35 (S1) prior months-long resistance level with relative ease and surge into territory once seen before back in November of 2022. We hold a bullish outlook bias for the commodity not only due to the fundamental drivers (supply restriction reasons stated above), but also due to the formation of a cup & handle pattern.
Adding support to our bullish case is a plethora of technical indicators that signal further upside, such as the formation of a “golden cross” near the $82 per barrel level on the 4th of September, but also the crossover of the MACD line above the signal line below the daily chart, alongside the incremental rising values of the histogram, signalling bullish momentum.
Furthermore, the RSI indicator demonstrates that the sentiment lies with the bulls, given that it has reached the 70 overbought threshold, however, concerns for a possible correction lower are evident and could come into play, once the move remains overextended for long enough. Concerning nonetheless, is the absence of a volume spike so far which could restrict the pace of ascension.
Shall the bulls continue to steer and dominate over the direction of the commodity, we may set the price rising towards the $92.20 (R1) resistance level, possibly challenging and breaking past the months-long resistance barrier. Should on the other hand, the bears take over, we may see the break below the $84.35 (S1) support level, and thus the invalidation of the cup & handle formation, with crude’s price retracing, falling closer to the $78.40 (S2) support base.
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