Crude oil and OPEC - stronger united

Two weeks after a routine OPEC+ meeting ended in stalemate, a compromise was reached at an OPEC+ meeting over the weekend that will see a phased production increase and baseline increases for five members.

Energy 3

From August, OPEC+ will commence adding 400 kb/d to the market on a monthly basis. From May 2022, UAE, Saudi Arabia, Russia, Iraq, and Kuwait will have a higher combined production baseline of 1.63 mb/d, which will raise the collective production increase to 432 kb/d.

The agreement should reassure markets that the group has settled its differences and increase supply to prevent prices from surging higher. It should also put on the backburner the idea that disgruntled members will take advantage of high prices by increasing production outside of an agreement.

The agreement is not legally binding should circumstances change. The group can pause, reverse or continue with the 400 kb/d monthly increase. The main risk in the near term is the spread of the Delta virus variant and resulting lockdowns that may dampen demand for oil over the next few months and see OPEC+ again cut supply.

However, the oil market remains structurally undersupplied in the medium term due to reduced capital expenditure from mining companies. A combination of low prices, reduced demand from the pandemic, and the ever-rising ESG movement that mandates investment in only clean energy sources.

With this in mind, we are looking for signs of basing in crude oil towards the uptrend support at $69.50/40, coming from the trendline drawn from the November $33.64 low as a possible buying opportunity.

The $69.50/50 level is reinforced by the wave equality target at $69.30 coming from the July $76.89 high, which would become the target if a long trade is entered.

crude oil daily chart

Source Tradingview. The figures stated areas of the 15th of July 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

More from Crude Oil

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.