Market update: OPEC+ fights declining oil prices with extended production cuts

OPEC+ extends production cuts into 2025 – voluntary cuts to be wound down from October

The Organisation for Petroleum Exporting Countries and its allies, otherwise known as OPEC+, decided to extend their existing production cuts when officials met on Sunday. The move comes amid a backdrop of rising stockpiles, surging US oil production and tepid demand growth from the world’s largest oil importer, China.

Economic pressures influence global oil demand

Elevated interest rates and a generally restrictive economic environment have weighed on the outlook for global growth, which has seen speculators drive down the price of both Brent crude and WTI oil. The vote to sustain the deep supply cuts – which amounts to around 5.7% of global oil demand – was aided by narrowing margins from OPEC producers that are likely to come under pressure if prices move notably below USD 80.

The 5.86 million barrels per day (mbpd) of cuts are comprised of a larger 3.66 mbpd and a voluntary 2.2 mbpd which was advanced by the Saudis. The 3.66 mbpd cuts are to run until the end of 2025 while the voluntary cuts are to remain until the end of September. Thereafter, the voluntary cuts will be tapered off into 2025.

Oil prices have fallen off in recent days, seeing higher prices capped at USD 85 before heading towards the psychologically important USD 80. The recent decline also took out the USD 82 marker with relative ease, but today’s price action appears to have found support ahead of the USD 80 mark.

Resistance and support levels in focus

Upside potential appears to be capped at the USD 84/USD 85 level with the 200-day simple moving average (SMA) repelling higher prices. The medium-term trend remains in favour of further downside, but the risk of a near-term pullback will need to be observed at the start of the week, with the descending trendline offering the first test of a potential counter-trend move.

Brent crude oil daily chart

Technical analysis

US oil (WTI) price action continues in a choppy manner, marking new short-term highs and lows as the sideways move expands its range. Today’s price action appears to be halting the sell-off and the long-term level of significance at USD 77.40 provides an immediate gauge of the counter-trend potential at the start of the week.

WTI (US) oil daily chart

Key resistance and support levels for WTI oil

Resistance appears around the 200-day SMA, above the USD 80 mark with the recent swing low of USD 76.15 the level to breach if the bearish move is to continue.

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