Crude oil prices took traders by surprise whipsawing them by closing 10% down having jumped 7% earlier. This came as traders waited on the latest development from the OPEC+ meeting held on Thursday.
OPEC agrees to cut production by 23%
Earlier in Thursday’s session crude oil surged 7% on growing optimism of the coronavirus situation improving and the Federal Reserve’s move to announce a $2.3 trillion loan program. The early gains were preceded by a 20% plunge from intraday highs even though Saudi Arabia and Russia reached an agreement to put an end to the oil price wars by cutting production. As a result, crude oil prices ended the day 10% lower on the balance.
This was an unexpected move from crude oil even after the OPEC meeting gave some promise by agreeing on production cuts. This, however, did not offer relief to the global output but they were signs of relief. OPEC allies agreed to cut production by 23% as from May to June giving optimism that the 10 million barrels per day reduction could be agreed on.
However, the scale back will be gradual beyond. The cartel is looking for a bottom in oil prices following a 70% crash early this year. The fallout in the economy caused by the coronavirus pandemic sparked the plunge. Demand for oil has dropped globally due to the coronavirus in which countries have imposed lockdowns. But the drop was exacerbated by Russia and Saudi Arabia after failing to agree on production cuts.
Analysis of crude oil
However, the is a possibility of oil dropping below $20 since there is still a market imbalance in terms of demand and supply despite the agreement. The economy is also struggling from COVID-19 and rising unemployment thus unable to match V-shape recovery.
Currently, US oil is trading near $23.10 but the bearish sentiment could see the prices push below $20 almost near 2001 lows of $17. Crude oil has established support levels at $22.55 and resistance at $27.13.