USOIL Slides after OPEC+ Supply Cuts, as China’s Economic Targets Underwhelm

  • USOil
    (${instrument.percentChange}%)

USOIL Analysis

Oil prices are rising this year on the back of the continued war in the Middle East and the hostilities in the Red Sea, as well as the output reduction program by OPEC and its allies. The group known as OPEC+ announced on Sunday it will extend cuts of 2.2 mbpd until mid-year, maintaining the total supply restrictions to nearly 5.9 million barres per day.

USOil advanced to 2024 highs last week in anticipation of the OPEC+ action and the substantial cut can help the commodity extend its recovery. We remain cautious though around the ascending prospects and gains that would tackle 84.90.

The commodity slides today and struggles once again to stay above the 38.2% Fibonacci, which raises risk for sub-EMA200 moves (76.70). This would shift bias to the downside and bring the February lows in the spotlight (71.38). However, strong catalyst would be required for a breach, as the downside appears well protected.

Supply restrictions are supportive, but have limitations compared to consumption, which could weaken this year. The recovery of the world's second largest consumer – China - has been sluggish and today's economic targets for 2024 fail to inspire confidence. Officials maintained the GDP target at around 5%, but lowered the budget deficit to 3% (from 3.8% previously), which implies that big stimulus will remain elusive.

Furthermore, the International Energy Agency (IEA) expects global oil demand growth to nearly halve this year to 1.2 mbpd and be eclipsed by non-OPEC+ production increases. [1]

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.

References

1

Retrieved 24 Jul 2024 https://www.iea.org/reports/oil-market-report-february-2024

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