WTI holds above surprise opening gap on OPEC’s decision

The West Texas Intermediate remains above the gap in bullish territory. The OPEC+ cartel shocked the market by reducing output by 1.1 million barrels per day in order to stabilize prices.

West Texas Intermediate WTI crude oil increased 6.3% on Monday and is currently trading at $80.44. The day’s high was $81.51, while the day’s low was $79.05. The OPEC+ cartel shocked the market with a 1.1 million barrel per day production cut to support prices, stating it would do so ahead of the group’s ministerial meeting on Monday. This production cut sparked a spike in oil prices.

The majority of the cuts, according to reports, would be made by Saudi Arabia, who will drop its production by 0.5 million barrels per day. Russia and the other countries have also agreed to cut back on exports. Although the unexpected production cuts from OPEC+ sent crude prices surging, it seems unlikely to prompt a further bid from CTAs just yet, given momentum signals require prices to surge over $85 per barrel for WTI and Brent crude, respectively, and $88 per barrel for WTI.

The International Energy Agency reports that the cuts occur at a time when global inventories are rising and supply is expected to have outpaced demand in the first half of the year. In the meanwhile, the agency predicts that in the second part of the year, demand will surpass output.

CTA positioning remains skewed short which suggests there is plenty of dry powder for additional buying as physical markets are now likely to tighten quicker than previously anticipated.

Following the output cuts, time spreads have indicated tighter markets. Over a longer time horizon, demand prospects are hopeful as China re-opening demand takes root.

The researchers came to the conclusion that this might lead to a resumption of speculative long exposure as the year goes on, which could act as a catalyst for CTAs to begin further short covering.