WTI Roller Coaster Continues

Various factors have conspired to push crude prices around, with the latest move by OPEC+ seemingly fading fast, in echoes of the last announced cut.

Crude Prices Drop and Recover in a Week

WTI closed out the month of May in which its price fell over 11%, the bulk of that drop happening in the month's final week. Weak data from China impacted expected global demand, dragging Brent prices down by 8.7% in the same period. But later in the week, the combination of optimism over passing the debt ceiling deal, better news out of China, and a massive surprise in the jobs numbers helped push crude prices almost back up to completely erasing the losses in May.

OPEC+ held its monthly meeting over the weekend, and there was already much speculation. It was the first in-person meeting in months, usually a sign that policy would be changed. And with the price having taken a nosedive recently, it was widely telegraphed that some cut would be announced. Ultimately, the cartel extended its already agreed cuts by a year, and Saudi Arabia announced a volunteer cut of 1M bbl/day for July. The cut could be prolonged beyond that but would be decided at the next meeting.

Priced in the Disappointment

When markets opened on Monday, the initial move higher faded somewhat, maintaining around a 2% gain through the early part of the day. Markets weren't overly impressed by the cuts, bringing back memories of the last time OPEC+ announced voluntary cuts only to see the price gains fade over a few weeks as weak economic data poured in.

The price gain could have some staying power this week, as there is relatively little in the way of major economic data, and the Fed is in its blackout period ahead of the policy meeting next week. So far, Crude prices have been more sensitive to economic data forecasting demand than supply. Saudi Energy Minister Abdulaziz bin Salman ruled out targeting a specific price for crude, but ahead of the meeting, took a combative stance with speculators warning that they could face "pain" ahead of the latest OPEC+ meeting. Maybe OPEC+ isn't looking to set a price, but the latest moves suggest they are trying to put a floor in somewhere around the $70/bbl mark. With a pending recession in the world's largest consumer expected later this month, the stage is set for a showdown between the Saudis and speculators.

WTI Completed Impulse

The upside leg from the low of $67 came in in five waves, forming an impulse which may or may not see further continuation toward $79.20 and $83.40 per barrel after completing some corrective pattern near $70. In the event of a breakdown, WTI's slide under the swing support of $67 would imply a flag pattern ending by $75 per barrel, exposing the commodity to a fresh multiyear low below $63.60, focusing on $60 per barrel.

Key Takeaways

WTI crude price fell over 11% in May, with weak data from China impacting expected global demand. However, optimism over passing the debt ceiling deal, better news out of China, and a massive surprise in the jobs numbers helped push crude prices back up to completely erasing the losses in May. OPEC+ held its monthly meeting and extended its already agreed-upon cuts by a year, and Saudi Arabia announced a volunteer cut of 1M bbl/day for July. The initial price gain after the announcement faded but could have some staying power this week as there is relatively little in the way of major economic data. There is speculation that OPEC+ is trying to put a floor in somewhere around the $70/bbl mark.