Oil climbs on OPEC+ deal
Oil prices spiked higher on Friday after OPEC+ finally reached an agreement to add just 500,000 barrels of production per day to markets in January. That was more than markets had hoped for, but less than they feared. OPEC+ will move to a monthly cycle in 2021 to review the production quotas, and this seems to have taken the wind out of the sails of oil on Friday. A monthly assessment implies itchy trigger fingers amongst OPEC+ members to increase production as soon as they can.
With Covid-19 vaccinations starting this week, and with a US stimulus deal apparently near, the OPEC+ news wasn’t enough to derail the oil rally, merely slow its ascent. The US Congress appears to be closing in a stimulus agreement, with a package worth USD908 billion package, which would mark a compromise between the positions of the Democrats and the Republicans.
Brent crude rose 0.70% to USD49.05 a barrel, having traded just shy of USD50.00 a barrel intra-day. WTI rose 1.05% to USD46.10 a barrel, trading as high as USD46.70 a barrel intra-session.
The narrowing contango on Brent crude futures, and its greater beta to a global recovery continues to see it outperform WTI, which appears to be suffering some US Covid-19 nerves. Brent crude has resistance at USD50.00 a barrel, with nearby support at USD48.60 a barrel and then the more-distant USD46.80 a barrel region. WTI has resistance at USD46.70 a barrel followed by USD48.60 a barrel. It has support at USD45.65 a barrel followed by a large gap to v44.00 a barrel.
Another day of strong rallies will leave both contracts’ relative strength indices (RSI) in very overbought territories. That is usually a sign that a downward correction is imminent. Although there is no sign that oil’s rally is in trouble in the bigger picture, that does not rule out the possibility of potentially gut-wrenching corrections along the way.