Oil prices surged more than 3 percent on Monday after Saudi Arabia and Russia agreed to extend production cuts into 2018.
That sent U.S. West Texas Intermediate crude as high as $49.66 a barrel, solidly above the $48.20 support level for the first time in two weeks. Oil prices sold off sharply after WTI breached that level on May 2, causing prices to fall through a series of key technical levels, culminating in a “flash crash” to $43.76.
John Kilduff, partner at energy hedge fund Again Capital, said he is now watching for WTI to break through $49.76 and $50.20, recent highs set in April. However, the rapid retracement of the last two weeks’ losses makes the gains vulnerable, he added.
“For the bulls to regain the full upper hand, a close over $50 is what we need,” he said.
OPEC and a group of 11 oil-producing nations agreed to reduce their output by a combined 1.8 million barrels a day in the first six months of this year.
Crude futures had initially failed to rally last week on signs that OPEC and other oil exporters would keep the deal in place throughout 2017. But analysts said a strongly worded overnight statement from top producers Saudi Arabia and Russia calling for carrying over the accord through March 2018 was enough to spark a big gain.
That built on a two-day rally last week after the U.S. Department of Energy reported a larger-than-expected drop in the nation’s crude stockpiles and a recovery in gasoline demand, which has been soft in recent weeks.
The department’s Energy Information Administration will release its monthly forecast of U.S. shale oil production today. U.S. shale output has recovered strongly as oil prices held above $50 throughout much of this year.
Another forecast for rising supply from America’s shale fields is “exactly the type of thing that undercuts” supportive headlines from OPEC and Russia, Kilduff said.