Booking Profit After Buying the Dip in Oil, As Saudis Extend Production Cut
Crude Oil has been quite bullish since the end of June, as the US economy is showing resilience, climbing around $15. Moving averages have been acting as support, supporting the pullbacks and keeping the price bullish. Earlier this week we saw another decent pullback. despite rumors about a major drawdown in EIA Oil inventories of around 16 million barrels. When the official news was announced of a record 17 million barrel draw, WTI dived below $80. That might have triggered profit-taking in the Oil trades who were already long on this news. This phenomenon is often referred to as ‘buy the rumor, sell the fact,’ where traders buy in anticipation of positive news but sell/close positions when the news is confirmed.
Oil prices have been gaining for 5 straight weeks, so some profit-taking should not come as a major surprise. However, the rapid drop to $79.60 on Wednesday after the news, which latter stretched to 78.70 was significant. The selling pressure likely intensified when the price broke below the significant psychological level of $80.
We had left a pending Oil signal to buy WTI in case of a dip below $80, which was triggered during that move. But, eventually, some good news came for buyers and we saw a strong reversal. So, our Oil signals closed in profit not too late after the dip.
One major concern in the Oil market was the uncertainty surrounding Saudi Arabia’s decision on whether to extend its voluntary production cut of 500,000 barrels per day (bpd) into September or possibly reduce it by half. Saudi Arabia announced its decision to extend its voluntary Oil production cut of 1 million barrels per day (bpd) through September. This move by Saudi Arabia aims to continue supporting Oil prices amid the ongoing market dynamics.
The announcement had a decent impact on Oil prices, causing them to rise by more than $3. Interestingly, a Reuters poll had indicated that 15 out of 22 oil analysts were expecting this decision. Despite the expectation, the full impact of the news was not fully priced in beforehand, as evidenced by the substantial reaction in the oil market.
According to the state news agency, Saudi Arabia has also stated that the production cut could be extended even further or possibly deepened beyond September. This provides an indication that the country remains flexible in responding to market conditions.