WTI bulls fail to hold above $42.00, OPEC+ in the limelight

The current/front-month contract for the US sweet light crude oil (West Texas Intermediary, or WTI) saw a decent rally on Monday of nearly $2 at most, with the contract briefly trading above $42.00 just prior to the US equity cash open. However, bullish momentum has since waned and commodity has fallen back below the $41.50 mark, but still holds onto gains of over $1 on the day (or roughly 3.0%).

Bullish demand-side drivers delivering, will supply-side follow?

Demand-side factors all seemed to tick the right boxes for crude oil markets to rally today; Chinese industrial production and Japanese GDP all beat expectations overnight and 15 Asian nations signed the Regional Comprehensive Economic Partnership (RCEP) trade pact, creating the world’s largest trade bloc (members account for nearly a third of the global population and around 30% of global), signifying lower trade barriers and strong growth in the region ahead.

Meanwhile, during the European session morning, Moderna revealed that the world now has a second functioning Covid-19 preventative vaccine, giving further impetus to already risk-on markets. Positive vaccine updates of the last two weeks continue to overshadow concerns regarding the fact that the US is following Europe back into lockdown (California is the latest domino to fall, with Governor Newsom announcing the harshest tier of lockdown from Tuesday for 94% of the state).

The supply side of the picture also looks positive. The OPEC+ Joint Technical Committee met today, ahead of tomorrow’s OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting (where OPEC+ nations meet to discuss the cartel’s adherence to their current output cut pact). According to sources being cited by Reuters, most members of the cartel expressed support for a three-month extension to the current output cuts. With OPEC+ compliance at 96% according to inside sources, tomorrow’s meeting is likely to be more about laying the groundwork for the top-level OPEC+ meeting at the end of the month, where the decision on to extend output cuts or not and by how much will officially be made. But the key here is that the cartel appears to be leaning heavily in favour of extending cuts, and keeping supply off of the market.

WTI caught between trendlines

From its early November lows of $33.65, WTI has rallied a stunning 23%. Last Monday, following Pfizer and BioNtech’s vaccine update, WTI burst back above a long-term uptrend that has proven to be strong support and resistance since the beginning of October and continues to do so. The uptrend links the 2, 26, 27 October lows, the 4 and 5 November highs and now also last Monday’s late US session low as well as last Friday’s low. Below this recent uptrend, support comes in the form of the psychologically important $40.00 level as well as the 21 and 50-day moving averages, which reside at $39.27 and $39.37 respectively.

Meanwhile, WTI upside continues to be constrained by the $42.00 level (as has been the case most of the time since early September) as well as another long-term trendline linking the 21 August low to the 21 September, 20 October, 12 November and Monday’s highs. WTI was briefly able to foray above both of these levels of resistance midway through last week, with the US benchmark of sweet light crude climbing as high as $43.00 – this will be the next level to watch if the bulls retake control and take WTI above $42.00. Above that, the post-pandemic high at $43.78 is the next level to watch.

WTI daily chart