Oil prices are showing resilience, rebounding on Friday and erasing weekly losses following the release of soft Personal Consumption Expenditures (PCE) data and anticipation of the upcoming OPEC+ meeting. The market is keenly focused on the potential extension of current production cuts into 2025, aimed at maintaining oil prices near $80 per barrel.
At the time of writing, West Texas Intermediate (WTI) crude oil trades at $78.05, while Brent crude stands at $82.29. The recent PCE report, which indicated a disinflationary trend, has helped alleviate some pressure on oil prices by dampening expectations of aggressive monetary tightening by the Federal Reserve.
The U.S. Dollar Index (DXY) has experienced a volatile week, currently trading just below 105.00. The Greenback saw significant movements due to fluctuating bond yields and mixed economic data. Wednesday's spike in bond yields was countered by softer housing and GDP data on Thursday, and the PCE report further pushed the dollar down.
The spotlight now shifts to the OPEC+ meeting scheduled for Sunday, which will be held online. Key points of discussion include the possible extension of production cuts by some of its members, a measure considered crucial to balance the oil market amidst uncertain economic conditions. Sources close to OPEC+ discussions have indicated that the group may extend some of its deep oil production cuts into 2025.
Iran, Libya, and Venezuela are exempt from production cuts due to external constraints like sanctions and war. However, Bloomberg and Reuters report that other OPEC+ members might maintain production cuts into 2025. The United Arab Emirates and Kazakhstan are expected to increase their production with new installations and sites coming online.
"The extension of some cuts into 2025 will likely be made conditional on OPEC+ agreeing on new individual member output capacity figures later in 2024," said one of the sources familiar with the discussions. A decision on 2025 cuts could be part of the outcomes from Sunday's meeting.
Analysts are also watching the Baker Hughes Oil Rig Count data, which is set to be released at 17:00 GMT. The previous count stood at 497, and any significant changes could influence market sentiment.
From a technical perspective, oil prices are sensitive to demand signals. The 100-day Simple Moving Average (SMA) at $79.05 and the 200-day SMA at $79.56 are key resistance levels. Breaking through these could pave the way for prices to reach $87.12. On the downside, the $76.00 marker is critical, with the $75.27 level being a pivotal support. A breach below $75.27 could lead to a sharp decline toward $68.
OPEC+ is currently cutting output by a total of 5.86 million barrels per day (bpd), which is about 5.7% of global demand. These cuts include 3.66 million bpd by OPEC+ members valid through the end of 2024, and 2.2 million bpd of voluntary cuts by some members expiring at the end of June. The potential extension of these cuts is seen as a move to stabilize the market amidst rising output from non-OPEC members and economic uncertainties.
Helima Croft from RBC Capital Markets noted the possibility of unexpected decisions. "We would not entirely rule out a plot twist - in the form of a deeper cut - given Prince Abdulaziz's penchant for Hollywood twist endings," she said, referring to Saudi Arabia's energy minister, who has been known for making surprising moves in the oil market.
The OPEC+ meeting coincides with Saudi Arabia's sale of a new stake in state oil giant Aramco, which could raise up to $13.1 billion to support Crown Prince Mohammed bin Salman's economic diversification plans. This financial maneuver underscores the kingdom's strategic approach to managing its oil resources and economic future.
