The upcoming OPEC meeting this week has taken on a great deal of focus given recent developments. Last week Russian and Saudi Arabian leaders met alongside the opening game of the World Cup to discuss plans to increase oil production while maintaining the petro-alliance forged in 2016. The proposals are centred around forming an OPEC+ group that would add an extra 1.5 million barrels of oil a day to the market which would essentially erase the 1.8 million barrel per day cuts implemented in 2016.
The meeting is also in focus due to the attention given to the meeting by President Trump who has used his Twitter account to criticise the oil cartel saying “Oil prices are too high, OPEC is at it again. Not good!”. This is the second such attack on OPEC in as many months as the President joins the swelling ranks of those publicly calling for lower oil prices to avoid overshooting inflation which could hamper the recovery.
However, the motion has met stark opposition from some OPEC members including Iran, Iraq, Venezuela and Algeria who are all struggling with their petro industries. Iran has come under fire from the US after President Trump announced last month that he was pulling the US out of the nuclear pact and imposing fresh, “powerful” sanctions on the country which would have a heavy negative impact on Iranian oil production. Venezuela too is in trouble given the sharp decline sin its own industry and the falling outlook due to US sanctions. The EIA last week said that production between Iran and Venezuela is set to fall by a further 30% over the coming year.
Iranian Oil Minister Sounds Off
Upon his arrival in Vienna, Iranian oil minister Bijan Namdar Zanganeh told reporters “I don’t believe in this meeting we can reach an agreement”. The country has so far reportedly rejected offers made in private, including one for a 300k – 600k barrel a day increase in the second half of the year. When questioned on the matter, Zanganeh told reporters “There’s no need”.
Given that OPEC reaches decisions based on unanimous votes, the level of opposition from countries such as Iran and Venezuela make it highly unlikely that OPEC will be able to agree on an increase in production. This creates the risk of further tension as Saudi Arabia might choose to act unilaterally and increase output like it did in 2011 when the OPEC meeting then ended without a deal being reached.
Hopes For A Last Minute Deal
Despite the tension and rhetoric heading into the meeting there is of course the chance that OPEC could succeed in agreeing a last minute deal. This has been a key theme in OPEC’s history with Iran in particular having made key U-Turns in the past most notably when Russian Premier Putin actually phoned Iranian premier Hassan Rouhani to agree a deal.
For now, the technical landscape for oil remains highly constructive. A series of bullish trend lines have been providing support and framing price action on the move higher which has seen price breaking some key levels, most notably the $67 mark.
While Oil has recently fallen back below the short term bullish trend line and back below the $67 level, there is strong support just below market where we have confluence between the $62 mark support and medium term bullish trend line. Below here we have even deeper support at the $55 level where there is confluence between structural support and the longer term bullish trend line from 2016 lows. To the topside, the key level to test next will be the $74.82 area sitting just above current YTD highs.