Oil prices were over 6% higher on Monday after OPEC+ announced a surprise production cut.
USOIL – 4H Chart
USOIL has jumped higher from a price channel and now looks set to test the $82.50 level. After the surprise element of the news, traders can expect short squeeze action and new volumes coming in.
Saudi Arabia announced that it will cut crude production by 500,000 barrels a day starting in May as a “precautionary measure aimed at supporting the stability of the oil market”.
OPEC+ had previously stated that their target oil price was around $80, but the recent banking crisis in the US dragged prices as low as $65. With recessionary fears in the global economy, the group has decided on the surprise move to cut its production levels ahead of its next meeting.
OPEC+ Production Cut
There was also some speculation that the Biden administration’s decision to postpone refilling its strategic oil reserve until the end of the year, or 2024, was also a reason for acting now.
The US sold $180 million barrels of oil from the reserve last year to help cool inflation, but they planned to delay buying new stock due to maintenance. That also means prices can increase from their target of $62-75.
The OPEC cut has also stoked fears of inflation that could add stress to a slowing global economy after the recent rate hike pause.
Traders can now take advantage of the rally and look for a drive to the $82.50 level for first resistance.
