Daily Market Recap – USOIL OPEC+ agreement and Delta variant cause prices to plunge

Oil prices fell after OPEC and its allies agreed to end oil production cuts but also because the spread of the pandemic poses a risk to the strength of demand.

The agreement is “better than no agreement” for the Organization of the Petroleum Exporting Countries and its allies - known collectively as OPEC+. A continued impasse on negotiations would have meant a disorderly increase in production and a fall in prices.

The group has agreed to increase production by 400,000 barrels per day on a monthly basis starting in August, as it prepares to phase out production cuts of about 5.8 million barrels per day by September 2022.

Negotiations on the production increase had previously stalled after the United Arab Emirates rejected the group's proposal for oil production cuts. This left the sector and investors in limbo, with experts warning that prices could either spike or crash without a deal.

The problem is that the floodgates are being reopened just as a significant risk to demand is emerging due to the delta variant. The highly transmissible Covid variant, which has spread to more than 100 countries, is driving cases to record levels in several countries. In particular, Covid cases have rebounded in the United States, the world's largest economy, this month as the delta variant spreads among unvaccinated people. The U.S. is averaging nearly 30,000 new cases per day in the last seven days ending Friday, compared with an average of about 11,000 cases per day a month ago.

The approach of the 2018 highs has caused profit-taking at first, which is turning into a correction on oil prices. Today's session is a long bearish marubozu that brings prices back to important support, right around the 50% Fibonacci retracement of the last bullish impulse around 66.50 USD. If this zone is broken, prices could return to a 61.8% Fibonacci retracement at USD 64 and towards the last market low at USD 61.55.

(Chart Source: Tradingview 19.07.2021)

However, the medium-term trend remains positive above the 200-period moving average and the current downtrend is only a correction. We will therefore watch for any reversal pattern to reposition ourselves above this moving average.

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.