Crude Oil Price Retreats on OPEC+ Perspective and a Firm US Dollar. Where to for WTI?

Crude Oil, OPEC+, US GDP, WTI, US Dollar, RBOB, OVX Index – Talking Points

• Crude oil tumbled going into the Friday session after posting a 3-week high
• The June OPEC+ meeting could see some action with conflicting views among members
• The structure of the market could be saying something, Will WTI resume rallying?

The crude oil price collapsed overnight with expectations that OPEC+ will stick to its production target and a US Dollar that is shooting for the moon.

Comments from Russian Deputy Prime Minister Novak suggest that the Organization of Petroleum Exporting Countries (OPEC) will not be adjusting its production target at the June 4th gathering.

In an interview with the Russian newspaper Izvestiya, he said that he does not expect any changes to output targets at the forthcoming conclave in Vienna.

His remarks are in stark contrast to comments made by Saudi Arabia Minister of Energy Abdulaziz bin Salman on Wednesday when he warned speculators to ‘watch out’. It seems that the threat had its short-term desired impact with crude jumping higher before tumbling into today’s Asian trading session.

Oil had also been supported by a potential supply squeeze due to wildfires spreading across the Alberta, British Columbia and Saskatchewan provinces in Canada. The situation there has calmed down to some degree although it remains a cause for concern.

The US Dollar has been on the rampage this week and it was somewhat odd that crude had managed to rally in the face of it. Currency markets are contemplating the implications of a US debt ceiling deal being done and the ever-rising Treasury yields.

Treasury yields have lifted all along the curve but most pressing is the 1-year note being only a handful of basis points away from a 23-year high near 5.30%.

Looking ahead, crude might struggle until the outlook for global growth finds firmer footing. Some good economic data out of the US overnight is heading in the right direction but China continues to struggle to gain growth traction since pandemic restrictions were removed.

Potentially lending some support to black gold is the RBOB crack spread that has ticked up again this week. The RBOB crack spread is the gauge of gasoline prices relative to crude oil prices and reflects the profit margin of refiners.

RBOB stands for reformulated blendstock for oxygenate blending. It is a tradable grade of gasoline. If profitability increases for refiners, it may lead to more demand for the crude product.

The price action in crude has seen volatility remain relatively low as measured by the OVX index potentially revealing that the market is comfortable with current pricing.

At the same time, the difference in price between the front two WTI futures contracts is relatively benign and could hint toward a degree of balance in the market for now.

Updated crude oil prices can be found here.

WTI CRUDE OIL, CRACK SPREAD, BACKWARDATION/CONTANGO, VOLATILITY (OVX)

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter