Oil Price Fundamental Weekly Forecast – OPEC+ Stalemate Hangs Over MarketThere are some fears in the market that an escalation of the stalemate between OPEC+ members and the UAE could lead to the demise of OPEC+.
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished higher last week, but after an upbeat performance at the start, the bullishness faded late in the week as OPEC+ failed to reach a new output agreement as expected on July 1.
Both futures contracts were supported throughout the week on expectations of increasing oil demand as economies in the U.S. and Europe continued to reopen. However, new concerns over fuel demand in parts of Asia arose as the highly contagious COVID-19 Delta variant surged.
Trading Derivatives carries a high level of risk to your capital and you should only trade with money you can afford to lose. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary. A Product Disclosure Statement (PDS) can be obtained either from this website or on request from our offices and should be considered before entering into a transaction with us. Raw Spread accounts offer spreads from 0.0 pips with a commission charge of USD $3.50 per 100k traded. Standard account offer spreads from 1 pips with no additional commission charges. Spreads on CFD indices start at 0.4 points. The information on this site is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
The markets were also supported by another drawdown in weekly crude oil inventories. Gasoline inventories also fell in the U.S. amid increased transportation and travel. In other news, U.S. energy firms added oil and natural gas rigs for a third time in four weeks. The oil and gas rig count, and early indicator of future output, rose by 5 to 475 in the week to July 2, its highest since April 2020, energy services firm Baker Hughes Co. said in its closely followed report on Friday.
WTI and Brent crude oil moved to multi-year highs early last week even as reports surfaced that OPEC+ would increase output by 2 million barrels per day starting in August. This was because bullish investors had expected a higher number.
Nonetheless, gains were capped after the United Arab Emirates blocked a deal, which could delay plans to pump more oil through the end of the year. By the end of the week, talks between oil ministers had resumed.
This is the issue that could determine the direction of the markets this week. OPEC+ is meeting again after UAE opposed the proposals, saying it wanted its quota to be higher, sources said. The long rally in prices could be undermined if OPEC+ nations go their separate ways and add to supply as they see it.
There are some fears in the market that an escalation of the stalemate could lead to the demise of OPEC+. If this occurs, prices could plunge, very similar to when Russia “left” OPEC+ in March 2020.
“We’re in wait-and-see mode here with OPEC,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see where the Saudis want to come out in terms of holding the group together.”
Look for volatility throughout the week especially if Saudi Arabia and the UAE continue to knock heads over oil output levels.