Crude Oil Price Whipped Around on OPEC+ Production Speculation. Where to for WTI?


Crude Oil, OPEC+, Saudi Arabia, Contango, Pullback, Volatility, China – Talking Points

  • Crude oil prices responded sharply to supply speculation
  • Futures markets could provide hints for WTI direction
  • China’s economic outlook continues to struggle against disruptive restrictions

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Crude oil collapsed around US$5 to a 10-month low on Monday before returning to where it started the week.

The wild ride was triggered by a Wall Street Journal article that said OPEC+ is considering a production increase of 500,000 barrels per day at its meeting next week. Saudi Arabia later denied the report, and this saw the price roar back to opening levels.

Cracks began to appear in the oil market last Friday as the futures market dipped into contango for the first time since May 2021. Contango is an indication of underlying supply and demand dynamics within the oil market.

It happens when the contract closest to settlement is cheaper than the contract that settles after the first. It highlights a lack of appetite from the market to pay more for immediate delivery, indicating that participants may be willing to wait.

Both episodes of contango saw the market go back into reverse to end the session on Friday and Monday.

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Contango is the opposite of backwardation, which occurs when the contract closest to settlement is more expensive than the contract that settles after the first. It highlights the willingness of the market to pay more to have immediate delivery, instead of having to wait.

A pullback has been a feature of the oil market since early 2021 after the stimulus measures to deal with the pandemic began to kick in. This duk en contango could say something about the broader global macroeconomic environment.

The swing in prices saw the volatility at a high level but it remains relatively contained.

The backdrop for crude was also hampered by a rise in Covid-19 cases in China, which raised fears of a return to severe restrictions after 3 deaths in Beijing over the weekend. Chongqing, Guangzhou and Shijiazhuang, all significant Chinese cities, are facing increased lockdowns.



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— Written by Daniel McCarthy, Strategist for

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter



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