Crude Oil, OPEC+, Delta Variant, Technical Outlook – Talking Points
- Crude oil remains on backfoot as OPEC uncertainty lingers
- Time running short for August production figures to be changed
- Technical stance suggests consolidation phase is likely
Crude and Brent oil benchmarks have failed to rebound from last week’s drop when an OPEC+ deal to roll back output production cuts for August failed to reach a consensus. The oil cartel and its allies have been reducing the pandemic-induced production cuts in recent months as the global economic recovery paced along.
The United Arab Emirates (U.A.E) wanted a rework on the baseline figure used to calculate the initial cuts, which would allow for the sale of additional oil. People familiar with the dispute say the Persian Gulf country wants to take advantage of current prices and sell as much oil as possible, according to The Wall Street Journal. This leaves a big blind spot in forecasting energy markets in the near term, and some suggesting it shows cracks in the oil cartel’s strength as an organization.
If a deal can’t be reached shortly, it will leave no choice but to scrap the proposed output increase of 400k barrels a day for August due to the time required to settle sales contracts between countries and suppliers. Background discussions are likely taking place to quickly solve the problem. The White House has also made public statements for more oil to be released.
On the demand side, the Covid Delta variant is also driving concerns as Southeast Asia struggles to contain the new virus strain’s spread. Rising daily case counts from Australia to South Korea are likely to remain a headwind in the near term. Low vaccination rates are forcing policy makers with no choice but to enact economically crippling lockdowns. Australia’s vaccination rate is below 10%, far behind the United States.
Crude Oil Technical Forecast
Crude oil’s technical stance reflects the uncertainty in markets. Prices pulled back from a fresh six-year high last week. The 26-Day Exponential Moving Average (EMA) provided support on last week’s drop and may do so again if prices break lower from the current level near the 38.2% Fibonacci retracement at 74.23. The recent swing high at 76.98 is likely to serve as resistance. Consolidation may be in store until a catalyst is reached.
Crude Oil 8-Hour Chart
Chart created with TradingView
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--- Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter
