Oil Prices Slump despite OPEC+ Extending Supply Cuts

  • USOil
    (${instrument.percentChange}%)

USOil Analysis

OPEC and allies like Russia decided on Sunday to prolong their output cuts, a phased plan that started in late-2022 and has help put a floor under oil prices. The group known as OPEC+ extended a subset of cuts of around 3.66 mbpd into the next year. It also rolled over into Q3 this year's voluntary curbs of 2.2 mbpd that were set to expire at the end of the month.

This last tranche of reductions however, will be gradually phased out from October onwards and markets dis not like thta, amidst strong non-OPEC production and expected deceleration in consumption. As a result, USOil slumps around 5% this week, running a negative quarter and is now in risk of further losses that would threaten 67.69. It was also weighed by poor China and US factory activity, buildup in US stockpiles and renewed hopes for Middle East ceasefire.

On the other hand, the OPEC+ output cuts are forceful and could lead to tighter markets over the next few months. Monetary policy could also be supportive as major central banks are likely to adopt less restrictive stance, despite some reluctance. Furthermore, as long as the Middle East hostilities continue, there is always risk of traffic disruptions.

On the technical side, the Relative Strength Index (RSI) is in oversold territory and USOil tries to stabilize today, which can lead to recovery effort. Bulls would need to retake the EMA200 and the broader 78.90-80.60 region to return at the driver's seat, but that does not look easy under current conditions

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

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