Sunday’s surprise OPEC+ production cuts have redefined the outlook for crude prices,...
The logo of the Organization of Petroleum Exporting Countries on a sign at at the OPEC headquarters in Vienna.Sunday’s surprise OPEC+ production cuts have redefined the outlook for crude prices, bringing $100 a barrel back into the frame.
The supply curbs announced over the weekend shocked traders and analysts, spooking any remaining short-sellers left in the market. Brent crude, the international benchmark, surged as much as 8.4 percent on Monday, before paring gains to trade about 5 percent higher at $83.94 a barrel as of 10:22 a.m. in London.
The last time OPEC+ drew criticism for an unexpected production cut, its approach was ultimately vindicated. The supply reduction of 2 million barrels a day agreed in October pre-empted a soft patch in global demand. Oil stockpiles built steadily in the months that followed, suggesting there could have been larger price declines without the curbs.
“OPEC+’s actions are clearly focused on shoring up a market that was looking increasingly weaker,” Citigroup Inc. analysts including Ed Morse wrote in a report. “Given market positioning and short covering, a spike now seems inevitable, but could be followed by realization that the market is a lot weaker than people think.”
Options markets are now showing a bullish shift in sentiment. The most-held Brent crude options contract over the next 12 months allows the holder to buy futures at $100, with the equivalent of almost 140 million barrels of open interest, according to ICE Futures Europe data.
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