Risk Recovery Supports Crude Oil Prices, OPEC Optimism Intact

Market expectations that OPEC and non-OPEC members will agree to extend production cuts has underpinned oil prices while a recovery in risk appetite has also been a key supportive factor.

After the sharp slide in oil prices seen ahead of the US open on Thursday, prices continued to recover ground in US trading.

The dollar remained generally weak which provided some net support to crude prices and there was also a stabilisation in risk conditions which had a significant impact in underpinning crude prices as immediate fear subsided.

WTI tested the $49.50 area before edging back to the $49.25 area. Prices consolidated with a firm tone in Asian trading on Friday as risk conditions remained firm.

There were source reports that the OPEC panel is considering both a potential extension and deepening of production cuts at next week’s meeting. The comments triggered a fresh round of buying support with WTI testing the $50.00 p/b resistance area for the first time in close to 4 weeks.

There was further underlying optimism that OPEC and non-OPEC members would extend the production cuts for a further 9 months, although there was also still caution over the effectiveness of the measures given that there has been only very slow progress in cutting excess global oil inventories.

June WTI futures consolidated fractionally below the $50.00 p/b level at the New York open with July Brent trading above $53.00.

The latest COT positioning data will be watched closely following a sharp decline in long positions over the past 3 weeks. Any further decline in long positioning would increase the potential for oil price gains to be sustainable while any renewed surge in long positions would increase the risk that prices will quickly attract profit taking and long liquidation.

OPEC rhetoric will continue to be monitored closely ahead of Thursday’s meeting and oil prices will be very vulnerable if there is evidence of discord between members. Any daily WTI close above $50.00 p/b would underpin sentiment.

WTI Oil Price 4-Hour Chart

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Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.