OPEC+ supply, US dollar and economic data in brief


BRENT OIL BRENT (LCOc1) TALKING POINTS

  • OPEC+ raises production target.
  • Attention turns to key Chinese and US data.

BRENT OIL FUNDAMENTAL FORECAST BRENT: MIXED

Brent crude oil ended the week strong after-NFP despite a stronger American dollars. We have seen OPEC+ agree to an increase of around 648Mb/d for July and August respectively, which represents a marked increase from the previously agreed value 432Mb/d. Interestingly, the increased supply included Russia despite reports of a potential exclusion due to Russian oil sanctions.

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Typically, a supply increase of this magnitude should lower crude oil prices, but with OPEC+ members currently struggling with supply targets at a much reduced volume, the 648Mb/d seems exaggerated for many contributing countries. The chart below from ING illustrates the shortfall leading to the revised supply target. I don’t see this trend changing over the next two months, which should keep crude oil prices high.

Source: ING

US stocks as reported by the Energy Information Administration (EIA) complemented the bulls in oil after large declines in stocks allowed a break in the $115/barrel resistance level.

Another key driver of crude oil prices stems from demand, and in particular from the Chinese economy. Being the largest consumer of crude oil, the COVID-19 hurdle has negatively impacted demand forecasts and therefore dampened crude oil price increases.

ECONOMIC CALENDAR

Looking ahead to next week, the China theme kicks off the trading week with PMI data that has been declining since December 2021. Another bearish print could weigh negatively on Crude Oil.

From a dollar perspective (historically inverse relationship to crude oil prices), the United States inflation dominates the calendar with the markets in anticipation of whether or not inflation will come down for a second consecutive issue or not. During this time, the dollar is already on the ascent after a strong Manufacturing PMI and labor data strengthen falcon story by the Federal Reserve.

Weekly Crude Oil Forecast: OPEC+ Supply, US Dollar and Economic Data in BriefWeekly Crude Oil Forecast: OPEC+ Supply, US Dollar and Economic Data in Brief

Source: DailyFX Economic Calendar

TECHNICAL ANALYSIS

BRENT CRUDE (LCOc1) WEEKLY CHART

Weekly Crude Oil Forecast: OPEC+ Supply, US Dollar and Economic Data in Brief

Chart prepared by Warren VenketasGI

The weekly brent crude candle appears to close above the psychological level $150/barrel mark for the second week in a row that could cement the level as a definitive line in the sand.

BRENT CRUDE (LCOc1) DAILY CHART

Weekly Crude Oil Forecast: OPEC+ Supply, US Dollar and Economic Data in Brief

Chart prepared by Warren VenketasGI

Paction of rice on the daily chart gives bulls hope for a retest of the recent swing high at $120.62 but caution is warranted as the fundamentals regarding the EU oil embargo on Russian oil and potential Russian retaliation remain uncertain.

Key resistance levels:

Main support levels:

  • $115.00
  • 20 days EMA (purple)
  • 50 days EMA (blue)

IG CUSTOMER SENTIMENT: BULLISH

IGCS shows that retail traders are slightly SHORT NET onCrude oilwith 63% of traders currently holding long positions (as of today). At DailyFX, we generally take a contrarian view of crowd sentiment, resulting in a short-term bullish bias.

Contact and follow Warren on Twitter: @Wenketas

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