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Why Did Oil Drop on an OPEC+ Output Cut and Will the Selling Continue?

Over the last twenty years or so, I have spent a lot of time teaching and mentoring aspiring traders. During that time, I have heard a lot of questions, but the most common one by far is why markets move in a counterintuitive direction after news. Normally, those questions are about stocks after earnings releases and the answer is often quite obvious. It may be that an EPS beat was achieved on lower than expected earnings, or that the numbers were boosted by a one off item and the adjusted number is actually lower than forecast. Or it could be the most common of all, that a good report was accompanied by a cautious or negative outlook.

When it comes to a counterintuitive move in commodity futures, though, none of those things apply. So, why did crude fall out of bed on Thursday, shortly after OPEC+ announced an extension to their production cuts? And, more importantly, is the bearish move going to continue?

Just in case you missed it, the group, made up of OPEC and several other producers with governmental control of output, most notably Russia, concluded a meeting on Thursday that had been delayed for a few days and announced that they were formalizing the until now voluntary cuts by Saudi Arabia of around 1 million barrels per day (bpd), and reducing output by nearly another million bpd elsewhere, including a half a million bpd output reduction by Russia.

Logically, that should have pushed oil prices higher, and yet, around three hours after the announcement,…

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