OPEC+ Extends Further

Crude prices are seeing very muted action at the start of the week with crude futures roughly flat across early European trading on Monday. The lack of volatility comes despite OPEC+ agreeing over the weekend that it will extend current production cuts through into the end of next year.  Commenting on the decision to extend restrictions, the Saudi energy minister noted that the group wants to see firm rate cuts in place before it can start to ease out of supply restrictions, noting that so far central banks have been “flip flopping” on their messaging.

Shifting Fed Expectations

The extension comes at a time when the market is still struggling to get a firm read on when the Fed is likely to cut rates this year. Initial expectations for a June cut have now been walked back as far as November, keeping USD stronger and putting pressure on oil prices. The risk is that if inflation remains sticky at current levels, rate cuts will be pushed back to next year, keeping USD stronger for longer, depressing oil prices.

Near-Term Outlook

Looking ahead, the start of the summer driving season in the US is expected to boost demand for gasoline which should offer crude prices some support. However, for now, the bigger focus remains Fed easing expectations and until we start to see an firmer signal that easing is likely in coming months, crude prices will likely struggle to build upside momentum.

Technical Views

Crude

The sell off in crude has seen the market trading back down to test support at the 77.64 level. This is a key support zone to watch and a break here will be firmly bearish for crude, opening the way for a test of 72.61 next. To the topside, 82.59 remains the key objective for bulls.