On Tuesday, oil prices closed higher on the expectation that OPEC will cut production with a new deal. The next API report indicates a draw in U.S. stockpiles. Oil prices were pressured on the news that the White House plans to sell half of the country’s petroleum reserves. WTI crude closed higher to $51.47 per barrel, which was a 5-week high. Brent crude oil closed higher to $54.19 per barrel.

OPEC Extension

OPEC and other nations are expected to meet in Vienna this Thursday. There, it will discuss whether or not it should extend the output cut deal. That was a deal that was created back in December in order to curb a build of oil stockpiles, and boost prices. At the time oil producers agreed to cut 1.8 million barrels of oil per day.

The most important aspect of the deal is Russia, because it pledged to cut up to 300,000 barrels of oil per day itself. The good news is that Russia will likely be on board with any plan that OPEC comes up with to extend the cuts.The goal was to perform cuts across a six month month period until June of this year.

The upcoming meeting is to discuss if it should extend these cuts. Well, optimism from the oil market came when there was a positive statement seen from Saudi Arabia. Saudi Arabia stated that it would be interested in extending cuts by nine months, well over the originally planned six month extension.

Crude Drawdown

The American Petroleum Institute — API — reported a draw of 1.5 million barrels of oilfor the week ending May 19. That compares to analysts that were expecting to see a drawdown of at least 2.3 million barrels. The key positive take away from the API report is that there was a drawdown in barrels of oil.

That is a huge positive, because oil prices only trade higher when stockpiles start to drop. That is because prices are determined by supply and demand. The smaller amount of stockpiles indicates two items. First, it indicates that demand is increasing. Increased demand means prices start to jump. Secondly, it means that production of oil is starting to be tapered off. With oil producers cutting production, that is another measure that reduces stockpiles.

Selling Reserves

Oil prices were trading lower on the open after it was announced that the White House was looking to sell half of petroleum reserves. The reason for the U.S. wanting to sell half of its 688 million barrels of oil is to help balance its budget. The sale that is expected to last between 2018 to 2027 will generate $16.5 billion for the United States.

The problem with such a sale is that it will pour millions of barrels of oil into the global market. There already exists an oil glut that is hardly manageable. Additional supply being added would cause oil prices to trade lower.

What Binary Options Traders Should Watch For

There are a few things that traders should watch.

The first of which is whether or not OPEC extends the oil output cuts this Thursday. That will be a key binary event that will swing the oil market one way or another. The extension is important if oil prices are to remain above the $50 level.

The second item would be the crude drawdown. If it continues to draw down again in next week’s API report then oil prices should start to recover. On the other hand, a build in stockpiles will pretty much cause prices to trade lower.

The final item that traders should keep an eye on would be if the White House enacts its plan to start selling its petroleum reserves. While it benefits the United States by boosting the budget, oil prices will hammered lower. It will be hard for oil prices to recover with so much supply entering the market.