Chart of the Day - Oil (04.03.2025)

Oil prices have plunged to a three-month low, with Brent crude falling to $71.26 per barrel as market pressures intensify from multiple directions. The benchmark has retreated more than 10% since mid-January, with WTI trading near $68, as several key factors converge to create bearish sentiment.

OPEC+ Surprises Markets with Production Increase

In an unexpected move that sent crude tumbling, OPEC+ announced it will proceed with plans to boost production by 138,000 barrels per day starting in April. This marks the first in a series of monthly increases that will gradually restore a total of 2.2 million barrels per day by 2026. While the coalition stated this "gradual increase may be paused or reversed subject to market conditions," the decision surprised traders who had widely expected another postponement, given current price levels are too low for many members to cover government spending.

Trump Tariffs Trigger Market Volatility

President Trump's implementation of new tariffs has added further pressure to oil markets. Effective Tuesday, the administration has imposed 25% tariffs on most imports from Canada and Mexico, with a 10% levy specifically on Canadian energy products including crude oil. China has immediately retaliated with countermeasures against US agricultural goods, raising concerns about a broader trade war that could dampen global economic growth and oil demand.

Supply Surplus Looms

Even before OPEC+'s decision to increase output, the International Energy Agency had forecast a global oil supply surplus of 450,000 barrels per day this year. This oversupply scenario persists despite the coalition's previous production cuts, as growing production from non-OPEC sources – including the US, Brazil, Canada, and Guyana – continues to outpace consumption growth.

Saudi Arabia Faces Financial Pressure

Adding to the complex picture, Saudi Aramco announced a significant cut to the world's largest dividend, reducing the expected total payout to approximately $85 billion in 2025, down from $124 billion last year. This reduction reflects the strain on Aramco's finances, which have shifted from a $27 billion net cash position to net debt in just over a year. With Brent averaging below $77 per barrel this year – far short of the $90+ needed to balance Saudi Arabia's budget – the kingdom faces challenging fiscal decisions ahead.

Market Outlook

Analysts remain cautious about oil's near-term prospects. Citigroup suggests the OPEC+ production increase is "directionally in line" with their call for Brent to drop to $60-$65 per barrel over the next 6-12 months. Warren Patterson of ING Groep noted oil is "under pressure on two fronts" from both the OPEC+ supply boost and US tariffs, with retaliatory measures likely to "further cloud the growth and demand outlook." Traders are closely monitoring developments in both global trade policy and producer discipline as key drivers for price direction in the coming months.

OIL (D1 Interval)

Oil is currently retesting strong support around $70.90, a level that has led to reversals since September last year. If this support breaks, bears may target the September low at $69.60. On the other hand, bulls will face strong resistance around $74.50. The RSI is showing bearish divergence with lower highs, while the MACD continues to widen after a bearish crossover.