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• OPEC+ shocks markets, cuts supply by 1 mbpd in an attempt to provide a floor and stoke speculation of higher prices after March’s washout.
  • Due to over-compliance of current supply cuts, the actual reduction is about 700,000 bpd.
  • The announced cuts total about 1.1 mbpd and, coupled with Russia’s supply reduction, for headline purposes, removes about 1.6 mbpd from the world Oil market.
  • Saudi Arabia led the move, cutting 500,000 bpd of its own.
  • Russia said it would cut production by 500,000 bpd, but this accounts for a lower production level through February.
  • Iraq and Kuwait announced voluntary cuts of 211,000 and 128,000, respectively.
  • The UAE may be the most surprising, announcing a voluntary cut of 144,000 bpd. This comes after they pushed the Saudi-led cartel for more production one month ago.
  • The announcement comes after the White House said it would not refill the SPR this year and, according to Bloomberg, has called OPEC’s move “ill-advised”.
  • Open Interest in the CME’s benchmark WTI contract hit a record 2.7 million contracts in 2018. Speculation amid Russia’s invasion of Ukraine helped OI reach 2.5 million last year, but indirection steadily eroded it to below 1.5 million through yearend, which appears to be the lowest since 2012. OI has rebounded this year, reaching 1.8 million, and a narrative of OPEC+ support reinvigorates fresh speculation.
• The Oil market news marks the start of a volatile week, highlighted by ISM data and culminating with Nonfarm Payrolls Friday.
• ISM Non-Manufacturing PMI for March is due at 9:00 am CT and follows the final SPGI Manufacturing PMI at 8:45 am CT.
• Fed Governor Cook is on the calendar for 3:15 am CT. Traders must keep an ear to the ground for added Fed speak and certainly anything pointing to the impact of higher Oil prices.
• According to the CME’s FedWatch Tool, the odds of a 25bps rate hike at the Fed’s May 3rd policy meeting have risen from 48.4% on Friday to 58.3% today, with the remainder being no move.
• The Fed’s preferred inflation indicator, the Core PCE Index, came in softer than expected on Friday and helped stoke a risk-on environment through the final minutes of quarter-end.
  • February Core PCE was 4.6% y/y versus 4.7% expected, and 4.7% in January, and +0.3% m/m versus +0.4% expected, and down from +0.5% in January.
  • Headline PCE was +5.0% y/y, versus 5.1% expected and down from 5.3% in January, and +0.3% m/m, versus +0.5% expected and down from +0.6% in January.
  • Personal Income data topped expectations at +0.3% versus +0.3%, but was down from +0.6% in January.
  • Personal Spending missed at +0.2% versus +0.3% and down from +2.0% in January.
  • Personal Consumption fell by -0.1%, versus expectations of flat, and won from +1.5% in January.
  • This further confirms the CPI data earlier in the month, the trend from recent PPI data, and sets the stage for a continued slowing of inflations due to broadly tighter financial conditions and higher base comparisons that begin in March.

E-mini S&P (June) / E-mini NQ (June)

 

S&P, yesterday’s close: Settled at 4137.75, up 57.75 on Friday and 136.50 on the week

NQ, yesterday’s close: Settled at 13,301.75, up 219.75 on Friday and 411.50 on the week

The move in Oil prices has taken the wind out of the tech rally to start the quarter. The NQ is -0.75% at the onset of U.S. hours, whereas the Dow is +0.3%, and the S&P is marginally lower.

 

• On Friday, the E-mini NQ futures hit the highest level since August 19th.
• Tesla is -3% after reporting deliveries and production data yesterday, just below expectations at 422,875 and 440,808, respectively.  
• We took a more Bullish Bias through the end of last week but have reduced this to cautiously Bullish.
• The quarter-end melt-up played out just as anticipated. Although a healthy pullback is in the cards, we now must see continued construction above the critical levels of support defined below. Most crucially, this is rare major four-star support at 4080-4089.75 and 12,980-13,011.

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Crude Oil (May)

Yesterday’s close: Settled at 75.67, up 1.30 on Friday and 6.41 on the week

• May Crude Oil was +9.25% last week, before the supply cuts were announced. Someone somewhere may have known something.
• However, the OPEC+ supply cuts come after Crude Oil’s fifth straight losing month, and ninth out of the last ten.
• The move in Oil, the fundamental narrative behind the OPEC+ move (discussed above) and technically given the gap higher has the ability to create a floor and reinvigorate a more intermediate to long-term move, but we are not advising to chase such strength.
• Of course, Friday’s settlement creates gap support, but a more constructive pullback and buying opportunity would be created upon a hold of major three-star support at 76.78-77.10.

  

Bias: Neutral/Bullish

Resistance: 79.79-80.45***, 81.04-81.69**, 82.58-83.04***

Pivot: 79.39-79.50

Support: 78.85-79.00**, 77.98**, 76.78-77.10***, 75.55-75.67****

Gold (June) / Silver (May)

Gold, yesterday’s close: Settled at 1986.2, down 11.50 on Friday and 15.50 on the week

Silver, yesterday’s close: Settled at 24.156, up 0.167 on Friday and 0.817 on the week

• How does the move in Oil impact the Fed’s expected path for monetary policy and what does it mean for Gold and Silver? Odds of a 25bps rate hike at the May 3rd meeting have risen to a 58.3% probability this morning from 48.4% Friday.
• Gold is still consolidating within a bullish pennant after a stick save by the bulls last night against two waves of strong support, highlighted in the levels below.
• For Silver, although significant resistance and damage from the February reversal persists, the bulls are in the driver’s seat while holding out above support aligning multiple levels at the March 24th spike at 23.70-23.85.
   

Bias: Bullish/Neutral

Resistance: 2000.5-2001.7***, 2006.5-2009.5***

Pivot: 1987.7-1993.3***          

Support: 1977.6-1981.2**, 1967-1971.6***, 1958.3-1962.7***

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