OPEC output cutbacks, weaker dollar push WTI daily gains

Prior to settling around $85.50, WTI reached the support level of $85.32. Investors are still assessing the Friday-released August US NFPs. OPEC expected that its voluntary production caps would remain in place. The WTI crude barrel traded neutrally in the $85.50-$86.00 band, close to multi-month highs, thanks to the falling US dollar, which helped it overcome daily losses.

The dollar is trading badly in comparison to most of its rivals as investors continue to analyse Friday’s Nonfarm Payroll (NFP) statistics. On September 4, US Labour Day, no noteworthy economic data will be released; as a result, attention will be on the August ISM Services PMI numbers released on Wednesday.

According to the NFPs, despite a rise in headline employment, the unemployment rate rose and the rate of pay inflation as indicated by average hourly earnings slowed. Given that the employment market appears to be cooling and that markets have already started pricing in a less aggressive stance for the remainder of the year, the Federal Reserve (Fed) may feel less need to maintain raising interest rates.

While the chances of a halt in September are still very likely, the chances of an increase in November or December have decreased to about 35%. The USD’s weakening is due to these dovish wagers. Because interest rates and oil prices have a history of being negatively correlated, the WTI may gain greater traction as the Fed approaches the end of its tightening cycle.

A tighter global supply may result from the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, notably Russia, extending their voluntary output restrictions until October. Oil prices could increase further.

The daily chart analysis indicates a bullish picture for WTI in the short term. The Relative Strength Index (RSI) is in positive territory close to the overbought threshold, over its midline. The green bars on the Moving Average Convergence Divergence (MACD), which show a strong bullish momentum, provide as additional confirmation. Additionally, the pair is above the 20,100,200-day Simple Moving Average (SMA), suggesting that the bulls are still in control of the market as a whole.