OPEC’s Compliance at 100%

Fundamental Analysis:

The recent developments in the Oil market have been rather enticing for Investors capturing the main focus of the market in the past days. OPEC’s meeting took place last week and it confirmed the market’s expectation of increasing supply. The result of the meeting was that crude oil supply should increase by as much as 1 million barrels per day. It must be noted that, OPEC and its allies have been very focused and disciplined with their agreement to cut supply previously. This discipline could also be translated as a very aggressive approach towards output and they may have left global demand somewhat uncovered for the time being.

Furthermore, a case could be made that only a few OPEC members have the capacity to produce Oil at higher levels or even the full volume of their targets levels. Of course, at the head of the list is Saudi Arabia and their fellow team mate Russia follow, but the question remains if these 2 countries can cover the demand in place which is seen increasing. Exports of Saudi Arabia have increased in the latest months and the decision to increase supply even further, could be an indication of misjudgment of oil demand.

On the other hand, as per OPEC and its ally’s agreement, it is not clear if a member is allowed to step in and cover for other countries shortfalls. More specifically, Venezuela and Libya which have significantly reduced their Oil production and exports due to political circumstances on the inside, cannot be covered by a member state because of OPEC’s legally binding agreement to cut supply. It is our opinion that the Saudi Kingdom could be under a lot of pressure from the US, in the following months, in order to increase exports and supply levels. However, from what the Saudis have revealed until now, they remain pretty cool and confident as they have never lost control and have been in line with their goals and targets in price and output. Yet, relying completely on the kingdom could be of significant risk, as until now they have been more on the side of keeping output stabilized in order to push prices higher.

The most recent news, coming from the international scene is that the US has pledged OPEC to increase Oil production with president of the US, Donald Trump opening up on his desire for Oil prices to remain low. OPEC announcement on Friday confirming that Oil Supply output will be increased had an adverse effect which found Oil prices rallying. The reason behind this market reaction could be that OPEC indicated a smaller than expected increase of production. OPEC’s compliance with the cutting agreement was over +100% and will now drop equal to that level and not below or above it. Moreover, Iran officials, have demanded that OPEC dismisses calls from the US for an increase in oil supply, arguing that the US was the reason of the recent rise in prices by imposing sanctions on Iran and fellow member Venezuela.

On a separate note, US Oil rigs were reduced from the previous week according to Baker Hughes. For the first time in 3 months, US oil rigs are seen reduced by -1 in comparison to last count. The Oil rigs counts is a measure of future demand and could have also impacted Oil prices, strengthening them but to somewhat minor degree compared to the pre mentioned news.

It will be very interesting to see how OPEC and its team mates will handle all the pre-mentioned issues. OPEC has most certainly shown its dominance in the Oil global market as even the US is reaching out publicly asking for more supply. OPEC has good reasons to be in good terms with the US. However, it is most probable they will not be able to please everyone and be on top as a group themselves but in our opinion they will not make significant changes any time soon.

Technical Analysis:

We start this analysis by noting that our previous 3 resistance levels $64.95,  $66.13, $67.60 have all been broken in the previous sessions and our now our support levels.

The commodity could be overtaken by a bullish movement causing it to move up towards the $69.55 resistance level and break it, moving further near the $70.50 resistance barrier.

Further statements on OPEC planned output increase could create turbulence for the black gold market.
If Crude Oil enters a bear market, we could see it moving downwards towards the $67.60 Support level and even breach it aiming for the $66.10 Support hurdle.

For the time being Crude Oil could be moving in a sideways movement between $69.55 resistance level and the $67.60 support level.