WTI slumps under $79.00, near $5.0 reversal from highs as traders book profits post-OPEC+

• WTI prices have seen a sharp reversal from earlier highs above $83.00 and now trade under $79.00.
• Profit-taking in wake of the OPEC+ meeting and technical selling are likely major factors driving the move.

Oil prices have seen rollercoaster price action thus far this Thursday. At one point, front-month WTI future prices were up more than $2.50 vs Wednesday’s closing levels, nearly reaching $83.50, but prices have since seen a near $5.0 (more than 5.0%) reversal and WTI is now trading underneath the $79.00 level. That means the American benchmark for sweet light crude oil is now trading at near one-month lows. Some analysts are perplexed that oil chose Thursday to sell off so aggressively, a day on which OPEC+ refused to cave to international pressure to increase output at a faster pace, instead opting to stick to the usual 400K barrel per day per month hike in output in December.

Some argued it was a classic case of buy the rumour, sell the fact; one analyst was quoted on Reuters arguing that, following a load up in speculative long positioning building up in the run-up to the OPEC+ meeting, traders were now inclined to take-profits in anticipation that further calls from the White House for the cartel to increase output might send prices lower. Rather than just putting verbal pressure on OPEC+ to increase output, the US government is also said to be considering options including releasing crude oil stored in the Strategic Petroleum Reserve (SPR) and imposing a ban on US oil exports, measures which could weigh on crude oil prices in the near-term. Another recent bearish development being cited by some analysts as weighing on crude oil markets this week is the resurgence of Covid-19 in China, where the country still operates a strict zero Covid-19 policy (meaning widespread lockdowns remain on the table), presenting a near-term risk to demand.

Technicians will argue that technical selling also played a key part in driving prices lower on Thursday; WTI prices had been supported by a bullish trendline going all the way back to August, a trendline that up until Wednesday was respected very well. After breaking below this trendline on Wednesday, Thursday saw the first major retest (when prices went above $83.50), which speculative, short-term sellers of crude oil may have leapt on. If oil is trading technically right now, the next key area of support to look at is the 6 July high at around $77.00 per barrel. Whilst some short-term sellers might want to book profit at this level, there is also a risk of the presence of stops below it, so a break below could see the sell-off accelerate and WTI head towards its 50DMA at just above $76.00.