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Oil prices rose on Wednesday following a sharp drop in U.S. crude inventories, with the market waiting for next steps from a meeting later in the day on the future level of output cuts by OPEC and its allies.
Brent crude futures were up 53 cents, or 1.26%, at $43.44 a barrel, and U.S. West Texas Intermediate (WTI) crude futures rose 61 cents, or 1.49%, to $40.89 a barrel, at the time of writing.
OPEC and allies will meet on Wednesday to decide oil output policy from August amid broad market expectations the group will ease supply curbs as the global economy slowly recovers from the coronavirus pandemic.
The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, have been cutting output since May by 9.7 million barrels per day, or 10% of global supply, after the virus destroyed a third of global demand.
After July, the cuts are due to taper to 7.7 million bpd until December. A panel involving key ministers and known as the Joint Ministerial Monitoring Committee (JMMC) will meet on Wednesday after 12 GMT to recommend the next level of cuts.
Reflecting a recovery in fuel demand despite the coronavirus pandemic, U.S. crude inventories fell by 8.3 million barrels in the week to July 10, beating analysts’ expectations for a decline of 2.1 million barrels, according to data from industry group the American Petroleum Institute.
OPEC’s secretary general Mohammad Barkindo said this week the oil market was getting closer to balance. On Tuesday, OPEC said it saw demand recovering by 7 million bpd in 2021 after falling by 9 million this year.
Oil prices have recovered to almost $43 a barrel from a 21-year low below $16 in April. The recovery in prices has allowed some U.S. producers to resume suspended production, a sign that is set to weigh on OPEC’s decision on Wednesday.
The real production increase from August could be less than 2 million bpd given Iraq, Nigeria and Angola promised to over-comply to make up for high output in May-June. Saudi Arabia’s oil exports in August will remain the same as in July as the extra barrels the kingdom is set to pump will be used domestically, industry sources told Reuters.
OPEC said in its monthly report that global oil demand would soar by a record 7 million bpd in 2021 as the global economy recovers from the coronavirus pandemic although it would stay below 2019 levels.
On the technical front, the RSI is at 58.66% and suggests that the market can move in an upward direction. The current price is trading above all the Moving Averages. The current price is above the middle band of the Bollinger Bands and is heading upwards. The stochastic is forming an upside crossover on an 8-hour chart.
Overall Bias is Positive and Short-term trades can be initiated with below mentioned Stop Loss and Profit targets.
Trade Suggestion-CRUDE OIL WTI-Buy At $40.88 Take Profit At $42.00 Stop Loss At $39.70.