WTI drops back towards weekly lows in the low-$59.00s as sources signal OPEC+ output hikes

Crude oil markets have seen rollercoaster price action over the last few hours, with market participants watching events at the OPEC+ meeting intently. Right now, it looks as though the cartel will be bringing crude oil back online from May and crude oil markets seem not to like this outcome. As a result, front-month futures contracts for West Texas Intermediary (WTI) crude oil have fallen back to the low $59.00s and are probing weekly lows. A break below the $59.00 level would open the door to an extension of losses towards March lows in the mid-$57.00s.

OPEC+ latest

According to two sources, OPEC+ has reached a deal on a gradual output increase from May. The cartel will increase output by 350K barrels per day in May, then again in June, then by 450K in July. Reportedly the Saudi Arabians are also proposing to gradually wind down their 1M barrel per day in additional output cuts, bringing back 250K barrels per day in May, then another 250K in June. However, a separate OPEC+ source recently told newswires that the Saudis are yet to communicate their plans as to the future of their voluntary output cut.

Other drivers

The US dollar has been on the back foot, with the Dollar Index recently slipping back beneath the 93.00 level, weighed by a sharp drop in US government bond yields. Given that WTI is priced in dollars when the US dollar depreciates, it makes WTI cheaper for purchase by the international market, and thus increases demand for WTI. As a result, WTI has a negative correlation to USD, and so Thursday’s drop in USD may be supportive. This might prevent any crude oil market sell-off from snowballing into a cascade.

Elsewhere, stocks are also doing well, with the S&P 500 above the 4000 level for the first time. Strong US data this week, including Thursday’s solid ISM Manufacturing PMI survey, show that the US economic recovery remains on track, with +6% YoY growth very much still possible this year. Meanwhile, the ISM employment subindex was very strong, boding well for a good NFP number on Friday, which will be the main focus of crude oil markets going forward. Strength in stocks may help prop up crude prices in the same way that weakness in USD is likely to; WTI may well remain supported above $59.00.