To extend or not to extend? That is the question. As the OPEC delegates converge upon Vienna, Austria this week there is a high probability that they will extend an agreement to limit oil output beyond the original six-month period. With rhetoric of deeper cuts, non-OPEC producers on board with a nine-month extension, and re-balancing global oil inventories to five-year average, it appears prices shall stay buoyant in the short-term. Friday’s settlement above the 50 day and 200 day moving averages with conviction, sets the stage for a continued rally to its next resistance level of 51.12 (50 day moving avg) and 52.92 (upper trend line). Both Brent crude and WTI are up almost 1 percent as of 11:30 am EST. That puts both benchmarks up over 10 percent from the most recent lows.
On the flip side, such bullish rhetoric can often lead to heartbreak and disappointment if continued cuts are not approved. With head winds of U.S. oil production climbing by 10 percent since mid-2016 and a 128 percent jump in U.S. rig count for new oil production since last summer, it will be difficult to answer the $64,000 question, “Will the extension of production cuts lead to stable prices in the future?” Only time will tell. In the meantime, it appears, we shall continue our comfortable range of $45 - $55 for WTI.