WTI crude softens post OPEC+, back in the sweet spot for bulls

WTI crude oil has softened despite OPEC+ announcing a prolonged extension of production cuts
Dips below $76.80 have been decent entry levels for bulls in 2024

An extension of deep and prolonged production cuts from OPEC has failed to ignite a rally in crude oil futures with prices sinking for a fourth consecutive session. However, with WTI returning to what’s been a reliable zone for bulls, these levels may prove tempting given favorable risk-reward.

OPEC+ extends deep cuts well into 2025

As widely expected ahead of Sunday’s virtual gathering, OPEC and its allies agreed to extend cuts of 3.66 million barrels per day bpd until the end of 2025 and begin phasing out voluntary cuts of 2.2 million bpd over the next 16 months, beginning in September.

While markets had expected OPEC and Russia to extend voluntary cuts by a few months due weaker oil prices, the decision to taper the reduction well into 2025 should be seen as a bullish surprise.

The cartel also forecast demand for its crude product would average 43.65 million bpd in the second half of this year, pointing to a draw in global inventories of 2.63 million bpd if its current rate of production is maintained.

OPEC+ is not expected to meet again until December 1.

WTI back in the sweet spot for bulls

Despite going beyond what most analysts were expecting in terms of duration of production cuts, WTI front-month contracts eased lower upon the resumption of trade in June, perhaps reflecting near-term economic concerns regarding the outlook for demand.

But as discussed in a trade idea released in late May, buying dips in WTI between $76 and $76.80 been a reliable trade for bulls this year, often delivering sizeable upside in the preceding period. And when you zoom out to a longer timeframe, the 200-week moving average is again nearby, providing a deterrent for bears to continue selling at these levels. Going back to early 2023, WTI has never closed below this level despite 15 separate tests to do so.

Given the risk reward, and despite the inverse hammer candle on the WTI weekly, the inclination is to continue buying dips targeting a bounce towards the top of the sideways range around $80. A stop below $76 would offer protection against reversal. Some resistance may be encountered around $78.60.

-- Written by David Scutt

Follow David on Twitter @scutty

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