By now, you’ve probably heard that Saudi Arabia announced they would cut oil production by 1 million barrels a day. The drop will reduce the number of barrels per day to 9 million from 10 million with the hopes of increasing the cost of the commodity.[1]
Investors and drivers alike want to know if it will have the desired effect?
$WTIC’s price did pop on the initial news, running from a little less than $68 to hair above the 50-day moving average of $74.80 in a few days. Sellers came out in force when oil touched the key benchmark and knocked oil into the middle of its current trading range.
To answer the question of whether the production cut will lead to the Saudi’s intended outcome, the answer is it’s 50/50 at best. $WTIC has been range bound for the last month. The commodity seems to have a hard cap at the 50-day moving average and double bottom around $68. To bust out of the range might require higher demand for oil or another production cut.
For now, oil investors could be better served waiting for $WTIC to break out of its box before taking bullish or bearish positions.
Rich Meyers
1 – https://www.reuters.com/business/energy/oil-prices-jump-more-than-2bbl-after-saudi-pledges-cut-more-output-2023-06-04/