Crude Oil Volaitility Expected as OPEC Increase Oil Production


Crude Oil Analysis and Talking Points:

  • Saudi Arabia and Russian Set to Turn the Supply Taps on
  • OPEC likely to relax production quota’s question is, by how much?

OPEC’s 174th ordinary meeting takes place today, while OPEC/non-OPEC ministers are due to meet on the 23rd. Expectations are for a relaxing of the current oil supply quota’s, which has been increasingly suggested by oil kingpins Saudi Arabia and Russia that the supply switch has been turned on.

Both Saudi Arabia and Russia look to maintain market stability amid possible supply shocks from rapidly declining production from Venezuela and potential production losses from Iran (following US withdrawal from nuclear deal), while demand growth remains robust as evidenced by reports from the EIA, IEA and OPEC. Additionally, compliance among OPEC members is over 160%, largely due to declining Venezuelan production.

Crude Oil Volaitility Expected as OPEC Increase Oil Production

Source: Thomson Reuters (OPEC Production & Compliance)

SCENARIO’S

1.5-1.8mln bpd: Russia have proposed that OPEC/Non-OPEC oil output should be boosted by anywhere from 1.5-1.8mln bpd in Q3, given that the market is effectively balanced, while demand remains high, suggesting that increased oil could be absorb. If this is agreed then oil prices will likely come under renewed selling pressure eyeing $70/bbl, given that this is towards the high end of expectations. However, the likelihood of this proposal being agreed is relatively low.

1mln bpd: Recent reports from Saudi Arabia suggest that a combined 1mln bpd output increase is a good target to work with and also the most likely scenario. Additionally, a supply boost of 1mln bpd would likely lead to an actual increase of around two thirds of Saudi Arabia’s target.

300-600k bpd: Source reports this earlier week noted that OPEC were to discuss an oil output increase of 300-600k bpd. In reaction to this Brent crude futures rose, given that markets have largely priced this in, while this is around the lower end of expectations. Additionally, the IEA forecast Venezuelan and Iran supply is to drop by 1.5mln bpd, which would imply that an output increase of this size may have a limited effect. As such, risks are skewed to the upside if this were to be confirmed by OPEC and Non-OPEC.

Tentative OPEC Programme(Time GMT)

Friday, 22 June (OPEC meeting)

08.00. Opening Session

09.00. Closed Session

11.00. Press Conference

Saturday, 23 June 2018 (OPEC/non-OPEC meeting)

08.00. Opening Session

09.00. Closed Session

11.00. Press Conference

BRENT CRUDEPRICE CHART: DAILY TIMEFRAME (February 2018-June 2018)

Crude Oil Volaitility Expected as OPEC Increase Oil Production

Chart by IG

On the downside, $73 holds for now with the 100DMA also seen as the next critical support zone at $72.23. Alongside this, strong support stems from the rising trendline from June 2017, which sits at $71.50. On the upside, resistance lies at $73.90-$74. A break through, could see another retest for $75.

OIL TRADING RESOURCES:

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX





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