OPEC has an uncanny ability to prompt volatility and did so again overnight as the group failed to reach an agreement that would increase supply and curb surging prices.
Headlines released at around 10 am EST time (midnight AEST) indicated Saudi Arabia and Russia had agreed to a lower than expected 400kb monthly increase each month to December, for a total hike of 2mb sent crude oil prices $2.50 higher, to $76.22.
Only to see prices fall by over $1.50, following a last-minute objection from the UAE. Reportedly, the UAE would prefer a higher baseline from which their 2022 production cuts would be calculated (current baseline is 3.2 mb/d while expansion efforts may have increased maximum capacity closer to 4 mb/d).
With crude oil markets currently in deficit and the default for no agreement being a return to the current agreement of no more supply increases, oil then spring boarded higher again to close at $75.21.
Overall, developments today indicated a bullish outcome is likely versus consensus expectations leading into the meeting. However, the market will need to wait until the OPEC meeting reconvenes today at 10.30 am EST to confirm this.
If OPEC and the Joint Ministerial Monitoring Committee fail to make a concrete recommendation there are past examples this year of the group maintaining production discipline and even cutting further.
All of this against the backdrop of EIA and API data that showed US crude stockpiles fell much more than expected last week amid rising summer demand.
After closing above $75.00 for the first time since 2018, the next upside resistance for crude oil is at $76.90 coming from October 208 high. If crude oil was to break above $76.90 in the event of a “no-deal” then allow the rally to extend towards $80 and beyond that the mid $80s where a sequence of lows from 2012 and 2013 will provide resistance.
On the downside, there is short-term support at $72.00 and again at $70.00 before medium-term uptrend support near $68.00 which is my preferred level to look for basing in the event of a higher than expected OPEC production increase.
Source: City Index