UK Oil

12:23, 23 May

Settles Around Key $71 Level as OPEC to Extend Output Cuts

Several weeks ago oil eased lower from six months highs above $75.50 down below the current key $71 level before rallying a little in the last couple weeks and consolidating around this level. Prior to the fall, oil had surged higher to reach its highest level in six months as it has comfortably moved past the key level at $71 after meeting some resistance at that level. 

Surprisingly this level didn’t provide much support in the last few weeks as it has now been broken back through, although it looks content to trade around this level for the time being. In the last month, oil has found solid support from the $71 level however this has given way in the last week or so.

Throughout February and March oil was trading in a narrow range meeting resistance at another key level of $68 and did well to finally surge higher through this level earlier last month. The $68 level will sit on the sidelines and possibly be called upon to offer some support should oil decline from its current levels. It has dropped sharply a few times in the last few months, however it has enjoyed a very solid start to the year rallying from 16 month lows below $50 at the end of last year, back up to the key $58 and $71 levels and beyond, after its doom and gloom to close out 2018.

The $68 level has played a significant role in the last few months which is why it may provide some support in the near future. Starting at the beginning of October, oil fell sharply from its multi-year high above $86 down to its lowest levels in 12 months below $58 at the end of November before falling lower to 18 month lows in late December. Oil has certainly turned this powerful selling around regaining much of the lost ground to close out last year.

Oil has continued to be influenced by several external factors, mainly ongoing concerns about global growth and where the global economy is heading, as well as Organization of the Petroleum Exporting Countries (OPEC) supply cuts. OPEC and others are leaning towards keeping a tight rein on production throughout 2019, in direct defiance of United States President Donald Trump’s calls to increase production and keep a lid on oil prices. OPEC and a group of allies led by Russia are trying to keep supply and demand in balance and stabilize prices by pumping less oil. This last weekend, a committee representing the ‘OPEC+’ alliance strongly indicated the group will extend the policy, which has helped to boost oil prices by about $20 a barrel this year. Should the OPEC+ group follow that course of action after they meet again next month, it will be the second time in six months they have openly ignored President Trump. On Sunday, Saudi Arabia’s oil minister, Khalid al-Falih, warned that global crude stockpiles are rising, threatening to swamp the world in oil and cause prices to collapse. “Overall, the market is in a delicate situation,” Falih told reporters at the committee meeting in Jeddah, Saudi Arabia.