All eyes were on Vienna last week as the OPEC nations and Russia met over two days for the semi-annual OPEC meeting. The main focus of the meeting was whether the OPEC nations and Russia could agree to reaching a deal to plug the void left by Iran.
Iran was cut off from the Oil markets following the U.S. Trump administration pulling out of the Iran nuclear deal and imposing sanctions on the nation.
Ahead of the meeting, a number of nations including the United States wanted to see OPEC to raise production in order to assist the global economy. Higher oil prices, according to most of the nations that includes the U.S., India and China noted would be detrimental to growth.
The U.S. President Trump tweeted, urging Saudi Arabia to raise crude oil production. This comes while the U.S. has also been ramping up its domestic oil production as well.
While there was no clear signals on what OPEC would agree upon, late on Friday OPEC announced that it would raise oil production by 1 million barrels from July onward.
The biggest obstacle was Iran of course which urged other OPEC nations from hiking production. Iran objected to the increase in crude oil production citing the U.S. sanctions on Iran and Venezuela which cut off the respective markets from the oil supply chain.
Iran’s oil production is expected to fall by a third by the end of 2018 meaning that Iran had little to gain from increasing oil production.
This came as the leading OPEC oil producer, Saudi Arabia managed to convince Iran to take a softer stance on the issue.
Oil prices initially jumped on the news given the fact that OPEC’s statement was seen to be vague.
OPEC also said in its statement that it would go back to being 100% compliant with the oil production limits. The one million barrels of oil increase in production is expected to raise the global crude oil supply by one percent.
However, Iraq said that the real increase would come to around 770,000 barrels per day given that most of the countries had previously suffered from production declines.
OPEC had last year reached an agreement to cut its output by 1.8 million barrels per day. The supply cut helped to balance the oil markets in the past few months. Higher oil prices were also seen having their effect as consumer prices across the G7 economies were seen steadily rising largely due to higher fuel prices.
Despite the production cuts, OPEC nations such as Venezuela, Libya and Angola faced outages which bring the supply cuts to nearly 2.8 million barrels per day in the recent months.
OPEC’s decision on Friday was seen to be broadly in line with the market expectations. However, crude oil prices were seen rallying on the news after initially declining for five consecutive weeks. WTI Crude oil was seen rising to a four week high on Friday following OPEC’s decision on increasing supply.
From a technical perspective, oil prices are seen reaching a major resistance level near 68.36 – 68.23 region. Given the strong rally, oil prices are likely to retreat off this resistance level to test the lower support formed at 65.77.
A rebound off this support level could potentially prepare ground for further gains in WTI Crude oil prices. Alternately, failure to hold near the support level could trigger further declines and could put crude oil prices into a short term bearish trend.