Daily Market Recap – USOIL Crosses a 3-year high

OPEC+ looks set to increase production in July as planned, as ministers prepare to tackle the thornier issue of managing a tight oil market for the rest of the year.

The group's joint ministerial monitoring committee recommended continuing the planned increase in July, with OPEC+ expected to add 841,000 barrels per day after increases in May and June, delegates said. There was no discussion of policy beyond that, but a full ministerial meeting will follow shortly.

Demand for oil is accelerating as vaccination programs expand and economies recover - and Brent above $71 is stoking inflation fears. But the outlook for the cartel, which engineered the price recovery from last year's historic crash, continues to be mired in uncertainty as attention turns to how it will manage an increasingly tight market later this year.

“Our compass continues to point in the direction of a sustainable recovery,” said OPEC Secretary-General Mohammad Barkindo. But he cautioned against complacency, warning that “Covid-19 is a persistent and unpredictable enemy, and vicious mutations remain a threat.”

In addition to the risk of new variants of the virus, Iran's potential return to international markets is another factor weighing on the ministers' decision. With the market facing a significant deficit to fill in the second half of the year, both of these considerations could prompt some producers to pause before any further production increases.

After the July increase, OPEC+ is expected to keep supply at this level until April 2022, in line with the agreement signed a year ago to save producers from a bitter price war. While the agreement can be renegotiated - and there will be pressure to do so if demand continues to recover - it is a fallback position for the group.

Oil is breaking through the resistance area that had blocked price gains 3 times since the beginning of 2019. Prices are backed up by the 13-day moving average, supporting the strength of the move. The black golds next target will be to claw towards the 2018 highs at 76.81 USD.

(Chart Source: Tradingview 01.06.2021)

A return with a weekly close below 67 USD would challenge the signal triggered by the resistance breakout. Reaching 62 USD a consolidation phase would take place but the positive scenario would be technically invalidated only below the support at 58 USD.

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.