When OPEC delegates meet in Vienna on May 25th, they will not be discussing which museums and galleries to observe, or where to get the best wiener schnitzel and sautéed potatoes. Instead, they will be deciding the fate of where WTI prices can go. Crude oil has violated multiple technical support levels in just one week: Tuesday’s upward trend channel of 49.25 and the previous week’s low of 48.20, along with Thursday’s collapse through last month’s low of 47.01. Both resulted in WTI futures being down about 17% so far this year. With an overnight “flash crash” at around 12:30 a.m. EST, the 43.92 weekly support level will dictate next week’s action. As of 11:30 a.m. EST, overnight assurances by Saudi Arabia’s OPEC Governor that Russia is ready to join OPEC in extending supply cuts to reduce the persistent glut, coupled with bargain hunting by traders, have rallied June WTI Futures about $2.30 from its overnight low. June RBOB has rallied $0.0565 and Heating Oil jumped $0.0670 off its lows.
Perhaps this recent flush in price is exactly what the doctor ordered for the crude oil bulls. At 98% compliant in March with production cuts, OPEC has cut more than it did during the last time OPEC cut in 2009. We rallied from a low of $32 to a high of $82 during that production cut year. Does history repeat itself? Most likely not as aggressive of a rally, but nonetheless something to keep in mind. The delicate balance of supply and demand may keep us in our comfortable range of $45 - $55 for the remainder of the year. Volatility in WTI options has kept its range bound levels of around 28% - 32%. Even though we had a couple of dicey days this week, it appears fear of ultimate collapse in prices is not in the cards. The VIX (Volatility Index) in the financial markets are indicating the same complacency with a 10 year low of around 10%. Even though it’s Cinco De Mayo, let us keep on the Vienna Vibe, enjoy some classical by Franz Shubert and continue the “wait and see” game.