OPEC plus to extend output cut
OPEC and its allies, also referred to as “OPEC plus,” have agreed to extend the current output cut until March 2020. Soon, OPEC will officially announce its members’ position on the oil output cut. However, the market expected an increase in OPEC plus’s output cut quotas. Read OPEC Could Extend the Output Cut: Will Oil’s Rise Continue? to learn more.
As of 5:44 AM ET on July 1, US crude oil prices were trading $0.16 lower than the previous closing level. However, oil’s implied volatility has fallen 26.8% from its highs the previous month. The fall in the implied volatility might suggest that the upside is intact in oil prices. Usually, a fall in oil’s implied volatility supports the upside in oil prices.
What’s next for oil?
Tensions between the US and Iran could escalate due to the current circumstances. Last month, President Trump extended the US sanctions on Iran. On July 1, Iran announced that it surpassed its limit to store low-enriched uranium, which will likely attract US attention. President Trump said that Iran is “playing with fire.”
The OPEC plus cut amid Iran sanctions will likely open a new market for US oil exports. On a year-over-year basis, for the week ending June 21, US crude oil exports have risen by 0.7 MMbpd (million barrels per day). The US crude oil exports were at 3.77 MMbpd—a record level. Since January, when OPEC implemented an output cut of 1.2 MMbpd, US oil exports have risen by 1.5 MMbpd—a concern for global oil exporters. A possible rise in US oil production this quarter could push exports further.
Oil outperformed SPY
On July 1, US crude oil prices rose 1.1% and settled at $59.09 per barrel. In the trailing week, US crude oil prices rose 2.1%. On June 24–July 1, the S&P 500 Index (SPY) rose 0.6%. The bullishness in oil might have helped the upside in SPY. Energy stocks account for ~5.2% of SPY.
On July 1, US crude oil prices were 8%, 0.1%, 0.5%, and 0.4% above their 20-day, 50-day, 100-day, and 200-day moving averages, respectively. However, US crude oil’s 50-day moving average was 0.3% above the 200-day moving average. If the shorter-term moving average falls below the longer-term moving average, also called the “death cross,” oil prices could become weaker.