Crude Oil Erased Losses; OPEC+ Carries On With Output Hike

Crude oil was falling initially on Thursday, reaching a session low near $62 per barrel, a level last seen since August. However, the unexpected move from OPEC and its allies to continue with its plan to raise production by 400K barrels in January had led crude oil to rebound up to $5 back above $67 per barrel.

Following the recent release of crude oil reserve by major oil importing countries such as the US, and the recent havoc over the new Covid-19 variant, Omicron, the market was anticipating OPEC+ to pause its production hike. Investors digested the OPEC+ decision as a certainty that the market still has rooms for additional supply ahead.

However, the cartel’s decision came despite the recent warning from OPEC on a market surplus next year. As a safeguard, OPEC+ announced that it will adjust its output policy anytime if needed, specifically if the Omicron variant jeopardize the global economic recovery ahead.

Yesterday’s rebound in the oil price was also argued as a technical correction, as investors closed their short positions after prices plunged from its 7-year high near $85 to $66 per barrel in November.

Outlook for the oil market ahead remains cloudy, as supply concerns continue to grow while global demand becomes highly dependent on the latest Covid-19 situation. The newly discovered Omicron variant could potentially cripple fuel demand if more countries reinstate lockdown measures. 

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From the technical front, crude oil in its D1 time-frame rebounded from its 62.00 support level back towards the 50.0 Fibonacci resistance near 67.70. Following the prior breakout below its upward trend-line, crude oil is currently completing its technical correction higher. Aggressive investors can consider short positions near the 50.0 Fibonacci resistance; whereas cautious investors are advised to wait for further bearish confirmation; such as a breakout below the 62.00 support level, before entering short positions.