All eyes will be on OPEC+ on Wednesday, as the oil producers are slated to make a decision on whether to extend the production cuts that are currently in place. OPEC+ (which is the OPEC members plus 10 other producers, the most important of which is Russia) implemented deep cuts in response to the global economic crash in the wake of Covid-19, as the demand for crude plunged. The cuts were originally scheduled to run until the end of June, but were extended for another month. Now, OPEC+ finds itself at a crossroad, and this decision will likely have a significant impact on the price of oil.
The production cut of some 9.6 million barrels per day (bpd) has helped stabilize the price of Brent crude, which is currently around USD 39. If the cuts are not extended, they would taper to 7.7 million bpd. Russia has announced plans to ratchet up production in August, and other producers are expected to do the same and grab a larger piece of the global oil production pie.
The question on the mind of investors and traders is how an easing of cuts will impact oil prices. Global demand for crude has increased in recent weeks, but with Corvid-19 spiking in the US sunbelt states and in Europe, demand could quickly lessen. Oil prices have been relatively steady in the month of July, but the calm could be shattered after OPEC+ decides on its next step.
USD/WTI is almost unchanged in Wednesday trade. The pair is currently trading at USD 39.01, up 0.12% on the day. In the Asian session, the pair posted small gains but has given up most of these gains in the European session.
- 41.25 is the next resistance line. This is immediately followed by the 41.34 Fibonacci level
- The round number of 37.00 is providing support
- The 20-day MA is at 38.47 – if the pair pushes below this line, it would be a sign of a downward trend