WTI Crude Oil rebounds on supply drawdown expectations, rate cut hopes

WTI climbed back into $73 per barrel, recovering ground from early week declines.
OPEC is set for further supply drawdowns in the face of renewed oversupply.
USD Crude Oil slumped to a two-week low of $69.50 before rallying 5%.

Further gains are on the cards for West Texas Intermediate (WTI) US Crude Oil after a recovery rally on Wednesday propped up barrel bids to retest the $73.00 handle as the Organization of the Petroleum Exporting Countries (OPEC) is set to bring about further production cuts in an effort to bolster flagging Crude Oil prices.

OPEC pumped an average of 28.05 barrels per day through December according to survey reporting by Bloomberg, and OPEC is expected to pursue an additional 900K bpd in production cuts, but energy markets remain unsure whether or not OPEC production caps will be enough to stave off Crude Oil oversupply from the US and other non-OPEC rivals.

Crude Oil continues to whipsaw amidst shaky production cuts

Many member nations of the 22-country OPEC+ extended alliance are already stretched to their breaking point on the amount of production cuts their government budgets can shoulder, and with OPEC lacking any mechanisms to reinforce production quotas or to punish members that flout production limits, Crude Oil traders remain concerned that production will continue to outpace slumping global crude demand.

OPEC+ will be holding a monitoring meeting to review activities in Crude Oil markets on February 1, to be followed up by a meeting of OPEC+ ministers in early June. Confidence in OPEC's ability to provide benefits for all members came under scrutiny recently after member nation Angola left the oil cartel in favor of pursuing uncapped Crude Oil production.

Crude Oil continues to catch support in the near term from Federal Reserve (Fed) rate cut expectations, and an overly dovish/hawkish showing from the Fed’s latest meeting minutes due later on Thursday could further bolster barrel bids, or send Crude Oil back down again as investors readjust expectations following the Fed’s latest meeting update.

WTI Technical Outlook

Wednesday’s rebound in WTI further highlights just how far Crude Oil has fallen; WTI remains down an eye-watering 22% from September’s peak of $93.98. Daily candlesticks remain below the 200-day Simple Moving Average (SMA) at $78.00, and a bearish cross of the 50-day SMA has baked in a technical ceiling near $76.00.

Intraday action remains capped below the 200-hour SMA near $73.50, and a bullish break to the topside will see additional technical resistance from last week’s peak near the $76.00 handle.