Market Analysis: Oil Soars on OPEC’s Cut

Oil contract prices soared after OPEC confirmed last week’s rumours, announcing a cut of more than 1 million barrels a day, equivalent to about 3% of production. The White House (USA) reacted immediately, accusing the organization of being “reckless”, as limiting production generates a shortage of supply, causing an appreciation of oil that, in the end, generates systemic inflation.

Is OPEC the villain?

Despite the negative effects, OPEC (Organization of Petroleum Exporting Countries) aims to guarantee the stability and balance of oil prices practiced by member countries. In this case, let’s remember that, although it seems obvious, cheaper oil that helps to contain inflation is the great villain at the moment: OPEC has no relation with targets for this indicator, its sole objective being the relationship with the price of oil, controlling it by limiting daily production.

Oil Analysis.

Last year we saw oil prices skyrocket after restrictions were lifted in most countries. With the return of tourism and routine away from home, a very large demand for oil led the WTI contract to a peak of US$129.00 a barrel at the end of March 2022, a year ago.

Since then, between ups and downs, the same contract has accumulated a 50% devaluation, probably what led OPEC to limit the supply to increase the value of the asset. After all, the objective is not to distribute cheap fuel to the world, but to maintain a balance, where producers also need to guarantee their profits.

USOIL, 1M (TradingView)

On Monday, when the cut in production was announced, the price of oil soared by more than 6%, trading above US$80.00 a barrel – a price zone that continues to be defended today.

But the most important thing is to analyze that, since the movement’s low on March 20, where the barrel reached US$64, WTI has been accumulating an impressive increase of 25%.

USOIL, 1D (TradingView)

Despite the positivity, a barrel of oil above 80 dollars will be very corrosive for the economy, hindering inflation. Most likely, the United States should announce the use of its oil reserves to avoid a surge in consumer prices, also avoiding an oil-inflated CPI in the coming periods. It is worth remembering that oil was one of the main factors responsible for high inflation last year.

Capital Economics revised its year-end Brent oil price forecast from $85 to $90 a barrel.

Gold Analysis

Oil prices rise, inflation expectations rise, and it couldn’t be different with the expectation of more monetary tightening by Central Banks. With so many uncertainties, the investor dropped the The U.S. Dollar Index (DXY) by more than 1% since yesterday, and sought protection in gold, which already accumulates a high of over 2.5% in the week, breaking today the consolidation zone drawn last week , and working above $2,000.00 an ounce on the XAUUSD contract.

XAUUSD, 1W (TradingView)

The next resistance is at $2,070.00 – basically we are $50 away from it, and again, we will need more events and negative news to justify buying force to break this price level. While we don’t see anything new, this remains a great selling point.

Faced with this beginning of the week full of speculation and future interest rates at a minimum, the focus is entirely on the US Non-farm Payroll that comes out on Friday tomorrow. Until then, we may have less volatility in the market, and it is ideal to avoid long trades.


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