During the early morning hours of Monday, the first trading day of the week, the Middle East woke up to a bunch of breaking news, leading Crude Oil prices to rise by 1%.
On Monday, many Arab countries decided to cut their ties with Qatar on claims that Qatar is supporting international terrorism. The decisions were tough, as many countries broke off diplomatic relations with Qatar.
Saudi Arabia decided to close its entire borders, including land, sea, and the airspace, while Qatar has only one land border and it’s with Saudi Arabia, where 30% of food imports come through.
Crude Oil spiked by more than 1%. However, it declined back and closed the day lower by around -1.5%.
What is Qatar’s Role In OPEC?
There were many reports saying that OPEC and Non-OPEC extension deal is at risk after yesterday’s political developments.
However, looking deeper into the numbers of the latest deal, Qatar’s share barely represents 1% of the overall production cut.
Qatar produces around 680K barrels a day, and they have cut their production by 30K barrels only. Therefore, there would be no big effect on OPEC and Non-OPEC extension deal, even if Qatar decided to suspend its membership in OPEC and/or withdraw from OPEC.
The 30K barrels production can be easily distributed to the other members.
For How Long Oil May Decline?
As we noted many times in our previous reports, Crude Oil downward risk is much higher than before, even after the extension of the production output cut.
December’s deal has failed to keep Crude Oil prices higher this year. Therefore, an extension is unlikely to push the prices higher as long as global inventories remain on the rise.
Things might change only if OPEC and Non-OPEC producers decide to cut the production further. This would be a major turning point. Otherwise, OPEC will remain active through the media to try and stop the current slide.
Brent Below $50
Brent Crude stabilized below $50 for the past two trading day, especially after breaking through the former solid support which used to stand around $50.50.
However, the technical indicators are oversold but still have some room for further declines ahead. The first immediate support stands at 49, which is today’s lows, followed by 48.16, which should be watched closely, as a breakthrough that support would clear the way for further declines, probably to this year’s lows.
On the upside view, any upside move in Brent Crude is likely to remain below the first immediate resistance at $50 and/or $50.50.
WTI Crude Testing Support
WTI remains below the $50 barrier since more than a week now, declining all the way back to 47.50’s for the past three trading days.
47.25 so far remains a solid support area, as WTI managed to test that support three times for the past three trading sessions and succeeded in stabilizing above that support until this report is released.
The technical indicators are oversold and flat at the same time, which keeps the possibility for another leg lower ahead. Yet, a daily close below 47.25 support area is needed to clear the way for further declines ahead.
If so, the first immediate support stands at $45, while a breakthrough that support would clear the way for a new low of the year blow $44.
For the time being, any rally for WTI crude is likely to remain capped below the first immediate resistance at $49.