Crude and Brent oil prices continue surging today after OPEC+ shocked the world by keeping the deep oil production cut in place. This was the most bullish outcome as market players didn’t expect Saudi Arabia to stick to its voluntary production cuts. Saudi Arabia and Russia are the most prominent players controlling the oil narrative. Their decision confirms that they can move oil prices.
Brent and Crude prices surged over 4% after the Saudi and Russian-led group left production unchanged. Oil traders strongly believe that oil prices are heading higher now as the OPEC+ cartel is not ready to significantly disrupt the oil supply.
What Was Expected From OPEC+?
Oil traders were expecting that OPEC and its allies (OPEC+) will increase the production cut that it put in place to support the oil price when oil futures crashed into negative territory in April. The number up for production cut debate was 1.5 million barrels-per-day (bpd).
Exception For Russia
Russia and Kazakhstan were able to get an exemption from the OPEC+ cartel. Russia will be increasing its production by 130K bpd from April, while Kazakhstan can increase the oil supply by 20K bpd starting next month. Both countries were also able to secure exemptions in February and March this year, mainly due to the seasonal consumption patterns.
Saudi Arabia: Keeping The Control
The Saudi Oil Minister said that he doesn’t care about prices and left the production cut unchanged yesterday. The minister also confirmed that Saudi Arabia could keep the voluntary oil production cut of 1 million bpd for a more extended period. It seems they do not have a target date for scaling back on their voluntary oil reduction.
MORE FOR YOU
Did You Get A Second Stimulus Check Today? Here’s Why
Trump Signs Executive Orders To Extend COVID-19 Economic Relief, Includes Unemployment Benefits, Eviction Moratorium
Biden: Stimulus Bill Passed During Lame Duck Session Is ‘At Best Just A Start’
Oil Forecast Increased
As a result of the OPEC+ meeting outcome, several banks decided to increase their targets. Goldman Sachs GS -0.6% raised its second and third quarters forecast for Brent to $75 and $80, respectively. JP Morgan believes Brent oil prices could advance by $2 to $3 a barrel in the coming months. Citibank believes Brent oil could reach $70 by the end of this month.
Oil Prices Today
Brent oil continues to rise, up another 2% today. Brent oil price is up 31% year-to-date (YTD). Crude also advanced over 4% yesterday, and today the price has surged nearly 2%.
The next possible resistance for Brent is $70, while the support is at $65. Crude oil is likely to find its ceiling near $67, while the floor could be near $62.
Is There Any Risk?
There are two risk factors that traders are worried about. First, oil prices this high could fuel inflation fear even further. This week we have seen a major sell-off across the U.S. stock market chiefly because of this fear of inflation. This particular pattern of sell-off due to inflation surging is also seen in European and Asian markets.
The other factor that traders need to keep a close eye on is U.S. and Saudi Arabia relations. We know that Donald Trump mostly pushed for lower oil prices, and Saudi Arabia paid attention. This helped Saudi Arabia maintain a good relationship with the U.S. during the Trump presidency. With Biden in White House, Saudi relations are already on unsteady ground, and Saudi Arabia not addressing the higher oil price issue could sour relations even further.