Crude Oil Prices Hit $75 as OPEC+ Meeting Stalls on Output Hike

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CRUDE OIL PRICE OUTLOOK:

  • Crude oil prices are at two-and-half year highs as markets await OPEC+ output policy
  • US crude inventories fell for six weeks in a row, underscoring demand optimism
  • WTI is riding a strong ascending trend and may aim higher levels in the weeks to come

Crude oil prices are hovering near two-and-half year highs during Monday’s APAC mid-day session, as OPEC+ failed to reach an output agreement at Friday’s meeting. The discussion will continue today with a focus on disputes between Saudi Arabia and the United Arab Emirates (UAE). The closure of US markets on Monday suggests that trading volume might be thin due to fewer market participants.

Members of the oil cartel except the UAE agreed in principle to ease production cuts by 400k bpd from August to December 2021, while extending output curbs into next year. The UAE is seeking to change the baseline for calculating its quota in order to boost its own production.

The planned OPEC+ output hike is lower than a Bloomberg forecast of 550k bpd and marks a small fraction of an estimated global supply shortfall of 3 million bpd by the end of this year. Therefore, tight market conditions may warrant a slow and gradual output increase and pave the way for prices to challenge higher levels in the weeks to come.

Estimated OPEC+ Production Hike in August 2021

Source: Bloomberg, DailyFX

The outlook for energy demand remains robust as the economic recovery gains momentum in the US and Europe. US commercial crude inventories have been falling for six weeks in a row, strengthening the outlook for energy demand (chart below). The emerging of Delta variant of the Covid-19 virus is threatening a new wave of lockdowns in Asia-Pacific however, casting a shadow over economic re-opening in the region.

Crude Oil Prices Hit $75 as OPEC+ Meeting Stalls on Output Hike

Source: Bloomberg, DailyFX

Technically, WTI breached above a key chart resistance of 74.00 and opened the door for further upside potential. The next resistance can be found at around $78.5 – the 61.8 Fibonacci extension. The overall trend remains bullish-biased as suggested by the upward sloped SMA lines. The Relative Strength Index (RSI) pierced above the 70 mark, suggesting that prices may be temporarily overbought and vulnerable to a technical pullback.

WTI Crude Oil PriceDaily Chart

Crude Oil Prices Hit $75 as OPEC+ Meeting Stalls on Output Hike

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

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