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Oil prices decline after OPEC decides to increase production

Oil prices fell on Thursday after OPEC members, including Russia, agreed to increase oil supplies starting from August. The decline in quotations is limited by hopes for a rapid increase in demand in the United States after a significant reduction of US oil reserves.

 

After the meeting of the OPEC+ Monitoring Committee, it was decided to increase the volume of oil supplies starting from August due to the global economic recovery and potentially increasing oil demand. In May, oil producers lowered production quotas by a record 9.7 million barrels per day. From August, this production cut will drop to 7.7 million barrels per day. It is planned that these restrictions will be in effect until December 2020.

 

At the same time, despite the aforementioned agreement, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman stated that the reduction in production in August and September will amount to about 8.1-8.3 million barrels per day. Countries that violated the established production quotas in May and June will have to compensate for this by additional cuts in August-September.

 

On Wednesday, the oil market was strongly supported by data on reserves from the EIA. Unexpectedly, oil reserves for the week decreased by almost 7.5 million, against the forecast of -2.1 million barrels. Investors interpreted this information as a signal of a recovery in US energy demand, despite the spread of the virus and new restrictions in some states.

 

A reversal signal is forming on the chart. The price broke through the upper border of the 38.70-41.10 flat, but quickly rebounded. Today we would expect a decline in quotations towards the level of 38.70.

 

  • Resistance levels: 41.10, 42.00, 44.00.

 

  • Support levels: 38.70, 37.00, 34.50.

 

The main scenario - a decline to 38.70

 

Alternative scenario - a consolidation above 41.10 and growth to 42.00.

 

The current fundamental outlook is neutral. We would consider shorts from the level of 41.10

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