WTI surges on production cut expectations

The heightened fears over the excessive oversupply of oil in the markets have created an explosively volatile environment which continues to allow ongoing expectations of possible production cuts to translate into speculative boosts in the oil price.

During trading on Thursday, WTI surged to fresh weekly highs at $34.75 following a report that Russian energy minister Alexander Novak which declared that Saudi Arabia had proposed a 5% production cut in each of the OPEC members. This unverified proposal was later rejected by an OPEC representative who stated that Saudi had made no such offer, and this consequently sent oil prices back down towards $33 as bearish investors reloaded their shorts.

Although the painfully low oil prices have continued to boost expectations for an emergency OPEC meeting, smaller producers are already near breaking point and this alone may provide a compelling reason as to why Saudi Arabia remains defiant towards slashing production. Even if Saudi Arabia miraculously decides to trim supply in a bid to boost prices, Iran remains on a quest to reclaim lost market share and has already pledged to ramp up oil production by another 500,000 bpd into the already saturated oil markets. In the near term, there may be a possibility that OPEC and Non-OPEC members repeatedly threaten for potential production cuts as a method of boosting prices while keeping output at record highs.

These violent appreciations in oil prices go against the fundamentals which indicate an unrelenting oversupply and potential waning demand. As long as oversupply continues to plague the markets and elevated anxieties around slowing global growth point to a fall in demand, WTI bears still have a solid foundation to provide another round of selling momentum in the near term. While the technicals are currently skewed, prices are trading below the $35 resistance and the MACD has also crossed to the downside. If bears can break back below $33 then the months of February may provide a fresh opportunity for another decline back down towards $30.

Global equity markets were turbulent during trading on Thursday as the violent movements in oil prices triggered investor risk appetite and toggled confidence towards the global economy. Asian stocks swung uncontrollably in the early sessions of Friday following the Bank of Japan’s unexpected negative interest rate policy which boosted the Nikkei255 and eventually pulled most Asian equities into the green territory. European equities concluded red on Thursday as earnings disappointed, but the false lifeline WTI bulls have been provided may translate to European equities starting today on a positive note. While American equities have shown some gains, it only remains a matter until the ongoing global woes and overall risk aversion encourages investors to scatter away from riskier assets which may consequently punish American stocks. 

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