Oil Mixed As OPEC+ Is Set To Boost Compliance With Production Cut Deal

Oil Video 20.08.20.

Some OPEC+ Countries Will Have To Cut Production To Compensate For Oversupply

A recent Reuters report stated that OPEC+ internal report indicated that some OPEC+ countries will have to slash production by as much as 2.31 million barrels per day (bpd) to compensate for their overproduction.

Recently, I wrote that OPEC+ will focus on compliance with the current deal rather than think about new ways to support the market.

Typically, such internal reports are intentionally leaked to the press in order to send a signal to the market.

This signal is obvious – OPEC+ production will not be as big as previously expected in the upcoming months.

While no details about the potential production cuts by laggards were provided, it’s logical to assume that any cuts will be spread across several months to make cuts technologically possible.

This is a bullish development for the oil market as oil prices fail to gain more upside momentum despite declining inventory levels. In case OPEC+ production declines in the next few months while demand continues to rebound, inventory levels will fall further, providing more support to oil prices.

Recent Fed’s Commentary May Be Another Obstacle On The Way Up

Yesterday, some markets found themselves under pressure after the release of FOMC Minutes which indicated that the Fed was surprised by the strength of household spending.

These comments provided support for the U.S. dollar and put pressure on commodities since stronger dollar makes them more expensive for buyers who have other currencies.

At this point, it is too early to tell whether the recent U.S. dollar upside will be continued. However, I’d note that dollar’s major downside move in July was one of the key catalysts that helped WTI oil stay above the $40 level despite worries about the second wave of coronavirus.

In this light, oil traders will have to closely watch the dynamics of the U.S. dollar in the upcoming trading sessions. In case the American currency resumes its downside trend, the attention of the oil market will switch to other catalysts while the continued upside of the U.S. dollar may put pressure on oil.

For a look at all of today’s economic events, check out our economic calendar.