Oil prices: Energy markets were expecting ‘a gift’ from OPEC

Crude oil prices (CL=F, BZ=F) take a dip further following the OPEC+ decision to extend production cuts into 2025 while easing voluntary cuts for its member countries.

CIBC Private Wealth US Senior Energy Trader Rebecca Babin likens the oil market to an over-expectant party host: “They [the market] wanted those cuts extended into the end of 2024, and we didn’t get the gift. And the market’s disappointed. So that was the first kind of reaction lower that we saw on Sunday night into Monday.”

Babin goes on to describe oil futures’ reactions to softening manufacturing data from the ISM.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Luke Carberry Mogan.

Video Transcript

Oil prices, they are falling again today and on track for the sixth straight day of losses here coming after news from the weekend that OPEC Plus is easing oil production cuts for eight members and joining us now is Rebecca Babin senior energy Trader at C I BC Private Wealth us.

Uh Rebecca always good to have you on the show.

So, you know, oil has been in this downward trend.

Rebecca help us make sense of that move.

What explains it and, and where do you see the price headed from here?

So I equate to what happened over the weekend as being invited to a party and the host says, don’t bring a gift.

So you write this nice card, telling the host how much you like them, your strong relationship in the future and you show up at the party, you hand the card to the host and they look at it.

You can tell by the look in their eyes that they wanted a gift and essentially the market wanted a gift from OPEC this over the weekend, they wanted those cuts extended into the end of 2024 and we didn’t get the gift and the markets disappointed.

So that was the first kind of reaction lower that we saw on Sunday night into Monday.

Then on Monday, we had a weaker PM I reading out of the United States, which as Julie just talked about kind of dovetails and amplifies this view that economic growth is actually starting to soften.

It’s not in a decline, it’s not panic mode, but we’re not seeing further acceleration.

So we saw crude kind of really get kind of spooked by the fact that hey, barrels are actually going to be coming back.

The economic picture is looking a little bit touch and go.

And the last thing and this is probably the most critical the trend following systematic um funds that trade, crude oil flipped from being long to going short at the end of last week.

And when we saw this negative confirmation over the weekend, they’ve been really aggressively pressing those shorts.

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So that leaves us in a place.

Now where the marginal buyer you ask yourself who’s going to step in and buy this dip, right?

Someone’s gotta be there or else there’s just no floor.

And you say, ok, fundamental guys, where are they gonna be?

They’re not gonna buy this dip until we see inventory draws haven’t been producing as of late those inventory draws that’ll change this week, hopefully.

And in to the further into the summer, not here yet though Macro players, they’re looking at copper.

It’s a cleaner play way to play the A I boom inflation there.

That’s the shiny new toy.

They’re not looking at crude.

So it’s tough to find a base here.

Um, so I think for now we’re looking for that floor.

I think whenever we get overly negative and we talk about how bad things are, you got to start saying, ok, how can we surprise the upside?

And I think we’re getting close to those levels where we could get that type of bounce.