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Oil Price Fundamental Daily Forecast – OPEC+ Division Creates Uncertainty, Encourages Profit-Taking

By:
James Hyerczyk
Published: Jul 6, 2021, 21:17 UTC

Goldman Sachs said on Tuesday the collapse of OPEC’s oil output talks had introduced uncertainty into the prospects for output.

WTI and Brent Crude Oil

In this article:

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures plunged on Tuesday in a volatile session, fueled by the cancelation of a meeting between OPEC and its allies. The group, known as OPEC+, failed to come to an agreement to increase supply.

The price action, however, suggests there is more to the issue. The failure to increase supply should’ve have been bullish news. The fact that prices plunged indicates that traders may be concerned about whether the group can stay together.

In March 2020, Russia “left” OPEC+ and crude oil prices plunged to nearly $20 a barrel. That is not likely this time, but the market may be vulnerable to a steep near-term correction the mid-$50’s.

At 20:52 GMT, September WTI crude oil settled at $72.90, down $1.46 or -1.96% and September Brent crude oil finished at $74.82, down $1.35 or -1.77%.

On Monday, ministers from OPEC+, which includes the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers, abandoned talks after negotiations failed to close divisions between Saudi Arabia, the largest OPEC producer, and United Arab Emirates.

Initially, oil rallied on news of the breakdown in talks, but prices retreated as traders focused on the possibility that the strife will cause some national producers to open the taps and start exporting more barrels.

“The market is concerned that the UAE will step in and unilaterally add barrels and other people in OPEC will follow suit,” said Bob Yawger, director of energy futures at Mizuho.

The United Arab Emirates (UAE) said it would go along with output increases but rejected a separate proposal to extend curbs to the end of 2022 from an existing April deadline.

Some OPEC+ sources said they still believed the group would resume discussions this month and agree to pump more from August, though others said current curbs might remain in place.

Goldman Says Crude Oil Output Path Uncertain as OPEC+ talks Cease

Goldman Sachs said on Tuesday the collapse of OPEC’s oil output talks had introduced uncertainty into the prospects for output, but maintained its view that Brent crude would be around $80 a barrel this summer, and that output would increase gradually early next year.

“The differences between both parties seem surmountable as they agree on ramping-up production into year-end with the still high uncertainty for 2022 oil balances making a pledge to any long-term commitment unnecessary today,” the bank said in a note.

“While the threat of a new OPEC+ price war is no longer negligible, its negative price impact would be dampened by a global market starting in a 2.5 mb/d deficit and in need of an extra 5 million bpd in production by year-end to avoid critically low inventories,” Goldman added.

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

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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