- Summary:
- Crude oil price declined because the market is not convinced that Saudi Arabia and Russia will cut daily output by more than 10 million barrels.
Crude oil price pared back some gains made yesterday as questions lingered about the news Trump made.
In an interview yesterday, the US president said that he had talked with Mohammed Bin Salman and agreed on the need to slash daily output by more than 10 million barrels. Obviously, this was a move welcomed by many oil investors, who have been worried about oversupply. He followed the statement with a tweet that said:
Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!
— Donald J. Trump (@realDonaldTrump) April 2, 2020
Shale Producers Lobby Against Saudi Arabia
Part of the reason why Trump took on the issue is that some of his friends in the shale industry had talked to him about it. According to the Financial Times, the biggest shale producers had hired Rick Perry, the immediate former energy secretary to lobby on their behalf.
A number of proposals have been forwarded to Trump. First, he has been urged to talk with the Saudi’s in a bid to make peace. Second, they have proposed adding tariffs or even banning Saudi Arabian oil from accessing US refineries. The producers have also talked about suspending the Jones Act, which helps make US oil more expensive than imported one.
Why Oil Price is Falling
There are two main reasons why oil price is declining today. First, Saudi Arabia said that a likely deal needed to include all big producers, including Russia and the US. It is unclear whether the US would be able to enter such a deal. The American Petroleum Institute (API) has opposed measures where US producers cut supplies. The association argues that pricing should be left to the market.
Second, it is believed that Trump had not consulted widely before he said what he said. Lastly, even with the supply cuts, the world is already flooded with crude oil, with most full tankers lacking a place to take it. Indeed, an OPEC source summarized Trump’s action as:
Trump talking before his brain engages
Download our Q2 Market Global Market Outlook
Crude Oil Price Technical Forecast
Looking at the hourly chart, we see that the Brent crude oil spiked yesterday to a high of $38 per barrel. Shortly afterwards, the price dropped sharply and formed a candlestick pattern similar to a long-legged doji. Meanwhile, the amount of volatility as measured by the Average True Range (ATR) pattern rose because of this price action. Today, I expect the bearish trend to continue especially if it moves below the important support of 27.87.