- Geopolitical events and weather disruptions are currently the main drivers of oil price fluctuations.
- OPEC+ production cuts have contributed to tighter oil markets, supporting prices. Can it continue?
- Technical analysis suggests key support and resistance levels to watch for future price movements.
Oil prices have retreated sharply since printing a fresh high on Friday. Gaza ceasefire talks and Hurricane Beryl touching down in Texas, are the major talking points at the start of the week.
Talks for a ceasefire in the Gaza strip have started up once more as a potential escalation in Northern Israel threatens to spillover. Any positive developments in talks will likely have an impact on the geopolitical premium currently priced into oil markets.
Hurricane Beryl has touched down in Texas with market participants concerned about the potential impact on US refineries just as summer demand reaches its peak. The drop off in crude inventories last week reinforced recent hopes that declining inventories could help keep oil prices supported over the medium term.
OPEC + Crude Production Falls in June
OPEC+ crude output from members under production cuts declined for the third consecutive month in June, as reduced Russian production offset increases from some consistent overproducers.
Output fell by 90,000 b/d to 33.98mn b/d in June, according to Argus estimates, the lowest in three years. But it could have been lower, with the alliance overshooting its target for the month by 130,000 b/d.
Reduced OPEC+ production has significantly contributed to tightening oil markets in recent weeks. The $7-8 per barrel increase in oil prices over the past month is likely a relief to OPEC+, which initially witnessed price declines after key members indicated plans to begin unwinding some of their production cuts starting in October.
OPEC + Crude Production
Source: Argus
Oil Inventories Remain Key
Oil inventory data is very important as the US and Europe are currently in the middle of summer. This period is typically the peak driving season in the US, leading to high demand for petroleum and other oil-related products.
Due to the busy summer season in the US, there is a good chance that weekly oil inventories will decrease more than expected. This could help keep oil prices strong and prevent any significant long-term price drops.
Technical Analysis
Oil prices have been on a terrific run of late, posting four consecutive weeks of gains. Brent reached a high around 88.55 on Friday before a pullback began. This has extended into the new week with oil prices retesting resistance turned support at the 86.21 handle.
This level could prove to be key for bullish momentum to continue. A bounce here could put oil back on course for the $90 a barrel mark.There is a possibility that price might dip below here and look to the 100 or 200-day MA as better areas of support. These two levels are currently resting at 85.13 and 83.60 respectively.
Support
- 86.21
- 85.00
- 83.60 (200-day MA)
Resistance
- 87.90
- 89.00
- 90.00
Brent Crude Oil Daily Chart, July 8, 2024
Source: TradingView.com (click to enlarge)
