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.

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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

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