President’s Trump’s budget proposal to sell half of the United States’ strategic reserve which is around 688 million barrels over the next 10 years has pushed the oil price lower on Monday, however, the price remain upbeat despite the sell-off on the news that Saudi Arabia, Russia, and Iraq have agreed to extend the current supply reduction deal for another nine months until March 2018. The North American benchmark WTI is currently trading at $50.6 per barrel and Brent is trading at $2.7 per barrel premium to WTI.

While a production deal extension for nine months is definitely a positive development for the oil price, we at FxWirePro, fear that oil might suffer the famous, ‘buy the rumor, sell the news’ trade. All the above three countries have indicated well ahead of the OPEC meeting on 25th of May that they support the extension of the deal and the drum beats have pushed oil price from its bottom around $43.7 per barrel to the current level within a fortnight.

When the oil price was trading above $49 per barrel back in April we forecasted the price to drop to as low as 443 per barrel and later extended that target to $38 per barrel mentioning the threat of deal extension as a vulnerability to the call. Despite the recent pickup in prices, we still do not see the strong drive that might lead price to rocket and hence we fear that the current rise could only be a temporary one. We would be closely monitoring price movement and the OPEC meeting outcome.