We forgot to cover the long awaited OPEC deal on Wednesday, but with such massive coverage on mainstream media, I don't think anyone in the world missed it. OPEC members finally came to a conclusion on Wednesday after months of playing hard to get by all members.
Still, they did reach an agreement at long last and that has been encouraged buy oil buyers… for two days. Yep, that's what this OPEC deal is worth, 7 cents top to bottom and a couple of days climbing up. Now that climb has stopped and the oil prices are slipping lower. WTI (West Texas Intermediate) is headed towards the $50/barrel Support/resistance level while Brent Crude (London oil) stands a few cents higher, as always.
The $52 resistance level has got to go if the uptrend is to continue
Non-OPEC oil producing countries promised to join the deal and today as Russia signed the papers. Non-OPEC producers pledged to cut production by 600k barrels/day, which is a considerable amount, yet the rally has worn off and a pullback is occurring as I speak.
So, what's going on? Why is oil not at $70/barrel?
First of all, this deal has been priced in long ago. OPEC has announced this agreement since oil prices slumped to the 20's in February, which makes this not such a big surprise.
The second reason is the booting off OPEC that Indonesia received. The Indonesian output will be shared among OPEC members, which will make up for a large part of the promised cut. They decided to cut but at the same time, they increased their share with Indonesia's OPEC quotas, while Indonesia will continue its production undisturbed. That just doesn't make sense.
The third reason is that OPEC doesn't really respect the quotas they themselves agree to. Looking at the history, in 85-90% of the cases, the OPEC countries have exceeded the quotas, so why not this time?
So, this is why the oil rally has faded and that's why we forex traders must be careful of CAD longs. The Canadian Dollar is very sensitive to oil prices, but the climb after the OPEC deal has been minimal, which means that a lot has already been priced in. So don't get too carried away. We are being extra careful as well.