Saudi Arabia and other OPEC+ oil producers have announced oil output cuts of around 1.16 million barrels per day.

Riyadh, Saudi Arabia’s capital and main financial hub, said it would cut output by 500,000 barrels per day, or bdp, from May until the end of 2023, state media reported.  Russia’s deputy prime minister also said Moscow would extend a voluntary cut of 500,000 barrels a day until the end of 2023. The United Arab Emirates, Kuwait, Iraq, Oman and Algeria said they would voluntarily cut output over the same time period. The UAE said it would cut production by 144,000 bpd, Kuwait announced a cut of 128,000 bpd while Iraq said it would cut output by 211,000 bpd and Oman announced a cut of 40,000 bpd. Algeria said it would cut its output by 48,000 bpd.

In a statement, the Saudi energy ministry said that the kingdom’s voluntary cut was a precautionary measure aimed at supporting the stability of the oil market.

This is expected to cause an immediate rise in prices for the open. West Texas Intermediate, WTI, crude oil as already risen to the highest in three weeks on Friday touching $75.68 as a high in the spot market.

Update #1:

USD/CAD bears lurking on OPEC news

USD/CAD ended Friday near flat but the Canadian Dollar edged lower against its US counterpart although it held near its strongest level in more than five weeks. The pair fell from a high of 1.3564 to a low of 1.3507 while the Canadian Dollar was supported by domestic data that pointed to stronger economic growth in the first quarter than the Bank of Canada has projected.

The Canadian economy expanded 0.5% in January, eclipsing the 0.3% increase economists had expected, while preliminary data for February showed Gross Domestic Product advancing by a further 0.3%. Meanwhile, slower US consumer spending growth boosted hopes the Federal Reserve would be less aggressive in hiking interest rates. The latest Personal Consumption Expenditure price index (PCE) also showed inflation is starting to slow in the US. The core price index lifted just 0.3% in February from 0.6% in January. Core inflation is now at 4.6% YoY and the headline level at 5.0% YoY. Personal income increased by 0.3% (from 0.6% in January) while personal spending dropped to 0.2% (from 2.0%).

Meanwhile, the price of oil, one of Canada's major exports, rose to the highest in three weeks on Friday touching $75.68 as a high in the spot market. The weekend news, OPEC producers announce voluntary oil output cuts, is anticipated to lift the price of oil which would be expected to be supportive of CAD. 

Update #2:

Breaking: WTI crude oil jumps 7.0% to $81.00 on surprise OPEC+ output cut

• Risk-on mood, softer US Dollar also propel WTI crude oil prices.

WTI crude oil begins the week with a huge price gap towards the north, jumping to $81.00 during the early hours of Monday’s Asian session. The black gold’s latest rally could be linked to the weekend announcements from the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, known collectively as OPEC+.

The Oil cartel, led by Saudi Arabia, announced a total of around 1.16 million barrels a day of output cut during the weekend in a surprise move. Following the announcements, the US National Security Council said. “We don’t think cuts are advisable at this moment given market uncertainty - and we’ve made that clear."

Apart from the OPEC+ output cut, the US Dollar weakness and broad risk-on mood also allowed the WTI crude oil price to remain firmer. That said, the US Dollar Index (DXY) marked a three-week downtrend in the last whereas the receding fears of the banking crisis and the latest toll on the hawkish Fed bets allow the riskier assets to remain firmer.

Moving on, the US Nonfarm Payrolls (NFP) for March and the ISM PMIs for the stated month will be important to watch. Also, the US reaction to OPEC+ isn’t welcoming and hence more Strategic Petroleum Reserve (SPR) releases are likely on the way, suggesting a pullback in the Oil price.

Technical analysis

A clear upside break of the five-month-old descending resistance line, now support around $78.30, directs WTI crude oil buyers towards confronting the 200-DMA hurdle surrounding $83.35.

It’s worth noting that January’s high of around $82.70 can offer an immediate upside hurdle to the black gold.

Alternatively, the previous monthly high of nearly $81.00 and an ascending support line from March 20, close to $75.40, are extra filters towards the south.

WTI crude oil: Daily chart

Trend: Further upside expected

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