The Formation of OPEC.

The Organization of the Petroleum Exporting Countries (OPEC) was formed in 1960 by five founding members: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The goal of the organization was to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets in order to secure an efficient, economic, and regular supply of petroleum to consumers. Over the years, OPEC has grown to include 14 member countries and has become a major force in the global oil market.

The First Oil Embargo.

One of the most significant decisions made by OPEC was the oil embargo of 1973. In response to the United States' support of Israel during the Yom Kippur War, OPEC members decided to cut oil exports to the US and other countries that supported Israel.

This led to a global oil crisis, with prices skyrocketing and shortages occurring in many countries.

The embargo lasted for several months and had a lasting impact on the global economy, leading to increased interest in alternative energy sources and greater efforts to reduce dependence on oil.

The Recent Production Cuts.

In recent years, OPEC has implemented production cuts in an effort to stabilize oil prices and reduce oversupply in the market. In 2016, OPEC members agreed to cut production by 1.2 million barrels per day, with non-OPEC countries also agreeing to cut production by 600,000 barrels per day.

This decision led to a significant increase in oil prices, with Brent crude reaching $57 per barrel in December 2016.

However, the effectiveness of these production cuts has been debated, with some experts arguing that they have been offset by increased production from non-OPEC countries like the United States.

What was OPEC's decision?

On Sunday, April 2, 2023, OPEC+ members met to make a crucial decision for the world oil market. OPEC+ is the organization that brings together the world's largest oil-producing countries plus Russia, including Saudi Arabia and the United Arab Emirates, among others. 

The decision made was to reduce oil production by 1 million barrels per day for the next three months, which significantly reduces the supply of crude oil by around 3.66 million bpd, equivalent to around 3.7%. of demand, if we include the cut of 2 million barrels last October. 

This measure caused an immediate reaction in the main crude markers, causing a wide upward gap after the opening of the West Texas (WTI) and Brent prices. 

Faced with a lower supply of crude oil, prices tend to rise, driving the prices of WTI crude oil by 6.22%, to USD 80.38 per barrel, while Brent rose 5.77%, to USD 84.52 per barrel. 

Since all markets are interconnected, the fundamentals that affect important commodities such as crude oil have a direct impact on the prices of several major currencies, such as the USD and CAD. Canada is one of the main oil producers in the world and the main exporter of this raw material to the United States, so the reduction in OPEC + oil production may extend the increase in oil prices in the short term. , further boosting the value of the CAD, especially against the USD and JPY.

What about risky assets like indices and currencies?

In terms of risk, we may see a decline in the value of risk assets due to the uncertainty that may arise from the OPEC+ decision and the rise in inflation. If oil prices rise in the short term as a result of lower supply, investors may become more cautious and start selling risky assets in search of safety, triggering purchases of safe-haven assets such as the JPY or USD .

How do high oil prices affect inflation?

Although inflation is being moderately controlled with high interest rates, when there is an increase in crude oil prices, there is a direct impact on fuel prices and, as an indirect effect, an increase in the prices of goods and services. services, which will continue to maintain high inflation rates. As a result, the USD is likely to renew its strength against other major currencies such as the EUR and JPY.

technical scenario

USDCAD

The pair has accelerated the bearish phase since last week, although it has been within a macro consolidation since November, whose control point according to the volume profile from October to March is around 1.34, an area that has triggered strong buying in recent months and that it could revive the bulls once again in April, despite the situation with crude oil. (USDCAD D VP1) USDCAD D VP1.png Likewise, considering monthly volume profiles, we can see that the prices are within the February buy zone, breaking the monthly POC at 1.3443, so we can expect a new bullish rebound above this level towards the high volume node in around 1.36, support broken at 1.3627 and March POC uncovered at 1.3732, a sell zone expected to be defended again by bears. Bearish continuation below 1.35 will test February support at 1.3262 and broken July resistance, now acting as support at 1.3223. 

Dollar Index (DXY)

The whole month of March was bearish and, after reaching the buy zone of February, a pullback can be expected towards the opening of the week at 102.91, testing the resistance at 103.36, the breach of which will open the way for purchases towards the March POC uncovered at 104.44, which represents the March macro sell zone and could be defended once again by bears. However, continuation lower from current levels could test February support at 100.85 and extend the near-term USD downtrend towards 100.00 and March 2022 resistance at 99.42.

West Texas Intermediate (WTI) Crude

It left a wide bullish gap after the April open, which breached the March control point and generated a first break of the last relevant resistance and March high at 80.98. The bullish continuation from the current levels could have a limited path given the need for the market to correct and cover the inefficiency left by the bullish gap (gap) between 79.00 and 76.00, an area that is equivalent to the Fib retracement