Oil prices have surged nearly 250% higher since recording a new 21-year low in April. On 1 May, the Organisation of the Petroleum Exporting Countries, otherwise known as OPEC, and its allies, known as OPEC+, agreed to cut the supply of oil by a record 9.7 million barrels per day. The aim was to offset crashing oil prices due to a huge slump in demand caused by the coronavirus.

The members of OPEC+ are due to meet for the first time in June. Will their actions keep oil prices pushing higher or lower?

OPEC+: Problems behind the scenes

Many energy traders had marked 4 June as a hugely important day. The members of OPEC+ were due to meet for the first time since announcing record cuts in May. The agenda was to discuss the timetable for oil production cuts through to April 2022. More importantly, there was a proposal to extend the current deepest cuts ever by another month or two - a situation that both Saudi Arabia and Russia are aligned on and an environment which could keep the price of oil pushing higher.

However, the meeting timeline is now up in the air with OPEC members now due to meet before the middle of June. The sticking point has been down to compliance issues with some countries not happy that others have been 'cheating' and not sticking to agreed cuts. In the last OPEC+ meeting in April, the disagreements took four days to iron out but eventually ended with an agreement in cuts of 9.7 million barrels per day (bpd) in May and June, 7.7 million bpd in the second half of 2020 and 5.8 million bpd to April 2022.

It is reported that Saudi Arabia is fed-up with shouldering the burden of cuts as they make up the quotas for other producers who are not meeting them. While all OPEC+ producers broadly agree on extending cuts, Saudi Arabia is looking for more assurances that other producers will stick to them. Both Saudi Arabia and Russia want to avoid another oil price war given the lack of global economic activity due to the coronavirus.

Another sticking point is the fact the rally higher in oil prices may cause some of the G20 producers who also agreed to cut oil production in May, deciding they no longer need to. Some OPEC+ members are even asking for G20 countries to sign a non-binding agreement with OPEC+ to keep their production levels down. But of course, legally, it's unlikely G20 countries will be able to do so.

How to trade WTI crude oil

With Admiral Markets UK Ltd you can speculate on the price direction of West Texas Intermediate (WTI) crude oil, using Contracts for Difference (CFDs). This product allows you to go long and short a market, using leverage. You can learn more about the advantages and risks in the 'What is CFD Trading?' article.

Below is the long-term, monthly price chart of WTI crude oil (CRUDOIL):

Source: Admiral Markets MetaTrader 5, CRUDOIL, Monthly - Data range: from 1 January 2007 to 4 June 2020, accessed on 4 June 2020 at 9:30 am BST. Please note: Past performance is not a reliable indicator of future results.

It's clear to see the long-term fall in oil prices. Actions from OPEC+ to cut the supply of oil in order to increase prices has seemed to work in the short-term, as shown by the recent move higher in the weekly-chart below:

Source: Admiral Markets MetaTrader 5, CRUDOIL, Weekly - Data range: from 4 December 2016 to 4 June 2020, accessed on 4 June 2020 at 9:45 am BST. Please note: Past performance is not a reliable indicator of future results.

The easing of lockdown restrictions has also encouraged some traders to step back into the market on the possibility of more movement of people and the potential increase in economic activity. While the move higher may look small in relation to the larger drop it does represent a rise from a low of around 10 USD to a high at the beginning of June of 35 USD - a 250% rise higher. (It's worth noting that different WTI oil instruments and different brokers may show different lows as it depends on which oil futures contract they are showing).

On the daily chart below, it's clear to see the recent move higher in WTI crude oil. Price has broken above the 20-day exponential moving average (20 EMA), as shown by the blue wavy line. This is a common trend indicator for traders to start initiating long positions. From a technical perspective, the price has also broken through recent swing high levels made on the most recent fall lower where price stayed below the 20 EMA.

Source: Admiral Markets MetaTrader 5, CRUDOIL, Daily - Data range: from 4 January 2019 to 4 June 2020, accessed on 4 June 2020 at 10:45 am BST. Please note: Past performance is not a reliable indicator of future results.

If the fundamental picture remains the same and the easing of lockdown restrictions causes an increase in economic activity and mobility, then it will be down to OPEC+ to give traders the most ideal scenario of extending production cuts. The combination of these factors could keep buyers in control, at least in the near-term.

Many traders will be eyeing the 42 USD price level as a possible target zone, shown by the horizontal line drawn on the chart above. This proved to be a historic level of support in December 2018. After breaking below it in March 2020, the level could now be used as a resistance point, as well as a target level in this situation.

If the price moved to this level, it will also fill the gap that developed on the breakdown from this level which was when Russia pulled out of the OPEC+ deal agreed the year before and Saudi Arabia declared an oil price war with them. Of course, this does not mean the market will go up in a straight line so timing and risk management should be another important component of your analysis.