Crude oil on roller coaster: OPEC+ cuts ignite a five-week high, yet market speculation and USD strength inject volatility

Crude oil opened at a five-week high on Monday after OPEC+ announced a reduction in the output target over the weekend that will take effect from the 1st of July.

The decision at the Vienna gathering of the Organisation of Petroleum Exporting Countries (OPEC+) comes after a similar move back in April that saw black gold race to a 6-month peak.

After that run-up, it collapsed to an 18-month low at the start of last month ahead of last weekend’s conclave. The price action so far today has been somewhat similar with an initial rally of over 4% from Friday’s close before giving up most of those gains.

Within OPEC+, Saudi Arabia will do most of the heavy lifting, lowering their production by a million barrels per day. This puts the largest oil-exporting nation at around 9 million barrels per day, down from circa 10.5 million barrels per day before the April cuts.

Russian production targets were left unchanged, and the United Arab Emirates (UAE) gained permission to add slightly while some African nations saw modest cuts and their output will be monitored.

The move had been telegraphed to some extent by the Saudi Arabia Minister of Energy Abdulaziz bin Salman.

Two weeks ago, he said, “speculators, like in any market, they are there to stay. I keep advising that they will be ouching. They did ouch in April. I don’t have to show my card, I’m not [a] poker player… but I would just tell them, watch out.”

The US dollar is also stronger to start the week after mixed jobs data on Friday that saw 339k jobs added in May according to the non-farm payrolls data. This beat the 195k anticipated and there was also an upward revision to the April figure to 295k from 253k.

However, the unemployment rate ticked up to 3.7% from 3.4% prior and above the 3.5% forecast.

There had been some commentary from a number of Fed speakers last week hinting that the bank might ‘skip’ a hike at the June 14th Federal Open Market Committee (FOMC) meeting.

We are now in the blackout period for committee members to be making public statements about policy until after the gathering. Without further guidance on Fed thinking, uncertainty and speculation might see a tick-up in volatility across markets, including oil prices.

WTI crude oil chart

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