Jun 25 2018

OPEC deal may not let Black gold shine after all

After a week of committee meetings in Vienna last Friday, Organization of Petroleum Exporting Countries (OPEC) and its allies announced a perceived modest increase in oil output, which led to a 5 percent increase in crude oil prices on Friday at $75.61 per barrel as it was not seen boosting supply by as much as was expected.

OPEC called for a return to 100 percent compliance of the group, down from 162 percent in May. The country specific allocation was deferred as they couldn’t agree on details. This probably means any country with spare capacity will be able to boost production. Though this cements Russia and Saudi Arabia as the major beneficiaries, the uncertainty lies in how the other countries will decide on how much to produce, while trying to stay below the collective cap.

OPEC recommended a supply increase of about 1 million barrels per day, though the market would reach only 0.6 million barrels per day as several countries have no ability to boost output. The deal puts a cap on sharp price escalations.

The Iranian oil minister doesn’t expect its oil buyers will get sanction waivers from the US when European majors have already stopped buying its crude, which signals a drop in Iran exports much further and more quickly than expected.

The alliance OPEC struck 2 years ago with Russia may become more permanent and the oil-market partnership between Russia and Saudi Arabia may last long.

Technically, in the hourly chart, the momentum indicators – MACD (moving average convergence divergence) and RSI (relative strength index) are hinting towards a sell and thus in the short term we can expect some correction in the Brent crude price. The Fibonacci supports are at 73.33 and 72.52, while the resistance is at 75.44 and 76.37 levels. Currently the Brent crude futures were at $74.00 per barrel, down 1.8 percent from their last close.