Daily Market Recap – USOIL Continues to push ahead, 85 in sights

Increasing reports that OPEC plus is failing to meet its production quotas are raising concerns about OPEC's real ability to produce more oil if needed. These concerns are currently highlighted in a report from Platts analytics. They estimate that OPEC+'s spare production capacity could shrink to 800,000 barrels per day (bpd) by June if the organization maintains its monthly quota increases. According to Platts, this could create an imbalance in the second half of the year.

Last Tuesday, OPEC+ agreed to increase its crude production by 400,000 bpd in February, as planned. Crude prices rose even after OPEC+'s decision to increase production, as the group's production increases are likely to be less than what was agreed. According to Energy Aspects, only 130,000 bpd of additional OPEC+ crude will hit the markets in January, and only 250,000 bpd will hit global markets in February, as some countries like Angola and Nigeria struggle to meet their production targets. In addition, OPEC crude production in December increased by only 90,000 bpd.

If this is indeed the case, any kind of disruption in the world could cause oil prices to spike. A real effort on the part of Opec+, but a total failure if you want to make the market believe that you have the will or ability to increase production to meet growing oil demand. Still, they point out that quota compliance is at 116.5%, the highest level since the pandemic cuts were instituted in the spring of 2020, a big change from when OPEC was still overproducing. Reports indicate that large production gains in Venezuela, Kazakhstan, Saudi Arabia, Iraq and Angola have more than offset losses in Libya and Nigeria.

Despite U.S. bans, Bloomberg News points out that Venezuela and Iran are selling oil to China with little or no U.S. interference. China doubled its imports of Iranian and Venezuelan crude in 2021, the most oil from U.S.-sanctioned regimes in three years.

Crude prices have regained positive momentum since the early December low. The candlestick with a long low wick on December 2 indicated that buyers were back in control. Since then, prices have returned above the 200-period moving average and the 13- and 34-period moving averages have turned upwards.

Prices could be headed for the October highs above USD 83. A breach would open the way to the psychological level of USD 100.

 (Chart Source: Tradingview 11.01.2022)

A polarity ring that serves as support is located at 73.50 USD. A return below this level would invalidate the bullish momentum.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.