Oil Slides As Traders Wait For Additional Catalysts

Oil Video 18.08.20.

OPEC+ Gets Nearly 100% Compliance With The Production Cut Deal In July

A recent Reuters report stated that OPEC + reached a 95% – 97% compliance with the production cut deal in the previous month. Reuters’ sources also indicated that OPEC+ was focusing on the compliance by Iraq, Kazakhstan and Nigeria.

This is a positive development for the oil market since OPEC has routinely had problems with compliance to any production cut deals throughout its history.

For OPEC, a 95% compliance is synonymous to a 100% compliance, especially given the fact that we are talking about a larger group of countries which comprise OPEC+.

At this point, it looks like the market can count on strong compliance with the agreed terms for the upcoming months. All OPEC+ members understand the unprecedented challenges poised by the coronavirus pandemic and look ready to put differences aside in order to stabilize the market in the longer run.

It remains to be seen how long such “peace” will last but I would not expect any material cheating or market share wars until the end of this year since oil producers understand that their current success in keeping oil above the $40 level may be destroyed by one inaccurate move.

WTI December 2020 Contract Is Still Below The $44 Level

The trading in the WTI September 2020 contract, whose settlement date is August 20, 2020, is slowing down, and the active trading is shifting to October 2020 contract.

The current spread between two contracts is about 30 cents, a sign that the situation in the oil market has fully normalized and wide spreads between contracts, which were seen during the acute phase of the coronavirus crisis, are a thing of the past.

At this point, futures traders do not anticipate that WTI oil will be able to get above the $44 level by the end of the year, and the December 2020 contract trades below $43.50.

While oil continues to trend higher, it certainly lacks upside momentum. Currently, oil is under pressure despite the fact that U.S. Dollar Index has managed to get to new yearly lows which is a bullish development for commodities.

Today, traders will have a chance to evaluate the new API Crude Oil Stock Change report. The previous inventory reports were bullish so oil still has a chance to get back to the upside mode in case the report shows a material inventory draw.

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