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Crude Oil Price Eyes Monthly Low as OPEC Retains Adjusted Output Schedule

Crude Oil Price Eyes Monthly Low as OPEC Retains Adjusted Output Schedule

David Song, Strategist

Crude Oil Price Talking Points

The price of oil approaches the monthly low ($101.53) as the Organization of Petroleum Exporting Countries (OPEC) retain the upward adjustment in their production schedule, and developments coming out of the US may keep crude under pressure as oil production climbs to its highest level since April 2020.

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Crude Oil Price Eyes Monthly Low as OPEC Retains Adjusted Output Schedule

The price of oil struggles to hold above the 50-Day SMA ($110.06) as it extends the pullback from the weekly high ($114.05), and failure to defend the June range may lead to a larger correction in crude as OPEC plans to “adjust upward the monthly overall production for the month of August 2022 by 0.648 mb/d.”

The decision by OPEC should keep a lid on the price of oil as they increased production by 0.432 mb/d for most of 2022, but it remains to be seen the group will retain the current schedule beyond the summer months in the Northern hemisphere as US production approaches pre-pandemic levels.

Image of EIA Weekly US Field Production of Crude Oil

Recent figures from the Energy Information Administration (EIA) show weekly field production of crude climbing to 12,100K in the week ending June 24 after printing at 12,000K for two weeks, and the price of oil may face additional headwinds over the near-term as the US, the world’s largest consumer of oil, contracts 1.6% in the first quarter of 2022.

Image of Atlanta Fed GDPNow Model

Source: Atlanta Fed

Looking ahead, the slowdown in economic activity looks poised to persist as the Atlanta Fed’s GDPNow model now states that the “estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -1.0 percent on June 30, down from 0.3 percent on June 27,” and the threat of a recession may lead to a larger correction in the price of oil as it casts a dampens the outlook for consumption.

With that said, the price of oil is on track to mark a third consecutive weekly decline for the first time this year, and crude may face a larger correction ahead of the next OPEC Ministerial Meeting on August 3 if it fails to defend the June range.

Crude Oil Price Daily Chart

Image of Oil Price daily chart

Source: Trading View

  • The price of oil appears to be on track to test the monthly low ($101.53) as it struggles to hold above the 50-Day SMA ($110.06), with a break/close below the $100.20 (38.2% expansion) region bringing the May low ($98.20) on the radar.
  • Failure to defend the May low ($98.20) may push the price of oil towards the Fibonacci overlap around $93.50 (61.8% retracement) to $95.30 (23.6% expansion), with a break of the April low ($92.93) opening up the $91.60 (100% expansion) area.
  • However, crude may face range bound conditions if it manages to defend the June low ($101.53), with a move above the $108.10 (61.8% expansion) region bringing the overlap around $112.80 (161.8% expansion) to $113.70 (78.6% expansion) back on the radar.
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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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