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Crude Oil: OPEC+ Extreme Production Increase, Harder to Restore Pre-Pandemic Capacity
Summary:
On August 3, the OPEC+ ministerial meeting announced an increase of 100,000 barrels per day in output levels for each member country in September. As international oil prices are still floating at $90-100 per barrel, it will be difficult for OPEC+ to return to its actual production capacity to pre-pandemic levels, even if it is more willing to increase production. Climate change and the rapid development of new energy industries have made oil-producing countries worried about the long-term prospects of oil demand, resulting in relative caution in long-cycle investment and development projects like oil fields and leaving little room for further capacity expansion.
CLOSED
91.600
Opening Price
84.500
TP
95.800
SL
89.936 +0.634 +0.71%
4200
Point
Loss
84.500
TP
95.826
Closing Price
91.600
Opening Price
95.800
SL
1 Fundamentals
Crude oil output from the Organization of Petroleum Exporting Countries (OPEC) rose to a twoyear high last month as Gulf states honored their commitments to increase production to ease supply constraints in the global market.
OPEC's crude daily output was raised by 270,000 barrels in July, with about twothirds of the new output coming from Saudi Arabia. OPEC and its partners have agreed to restart the remaining capacity that was shut down during the pandemic at an accelerated pace, as fuel prices rose to record highs due to peak summer demand and global production disruptions. The union will have a meeting on Wednesday to consider its next move.
Although U.S. President Joe Biden said after he visited Saudi Arabia last month that the country would make "further moves" on output, Saudi Arabia has been cautious. Recently, several OPEC+ representatives said that OPEC+ decided at its meeting this week that it would keep production unchanged for September to maintain crude stocks for emergencies.
Saudi Arabia's July daily production increased by 180,000 barrels to 10.78 million barrels, the highest level since April 2020 and a rare level for the country in decades.
Recently, the UAE and Kuwait have successively increased their crude oil production. Abu Dhabi has raised production to 3.24 million barrels per day, 113,000 barrels per day above what the OPEC+ agreement allows.
On August 3, the OPEC+ ministerial meeting announced an increase of 100,000 barrels per day in production levels for each member country in September. After this adjustment, OPEC+ production is scheduled to return to its prepandemic baseline level. Nevertheless, with international oil prices still floating at $90-100 per barrel, even if OPEC+ has the will to increase its production more, its actual production capacity will hardly return to the pre-pandemic level.
"Since extra capacity is highly limited, it must be utilized very carefully to cope with severe supply disruptions." OPEC+ pointed out that insufficient investment in the long term is the reason for the decline in extra capacity in the whole value chain of the oil industry.
Climate change and the rapid development of new energy industries have made oil-producing countries worried about the long-term prospects of oil demand, resulting in relative caution in long-cycle investment and development projects like oil fields and leaving little room for further capacity expansion.
With the situation of an "almost unsurpassable" set, the number of rigs has fallen off a cliff since the pandemic and has not returned to its original level, which has limited the current ability of many member countries to increase production.
2 Technical Analysis
2.1 WTI Crude Oil Weekly Chart
K-line: This week witnessed the bear candle K-line swallowing pattern, indicating that the market range oscillates downward, and the price will break below the support level and bears will start to create short positions.
Key resistance: The price broke the first key resistance level of 88.5, and the second key resistance level below is 84.1. The price may meet the oscillation to the downside and go short today.
Slow trend line: The slow trend line is above the price, with plenty of space.89-day SMA: The 89-day SMA is below the price, which still has room to move downward.
Bears: Bears dominate the market with a bearish trend.
CCL: Shorts increase positions with a bearish trend.
OBV: The OBV is turning down in the overbought area, with plenty of room below and a bearish trend.
Fast and slow trend lines: Fast and slow trend lines are turning down in the overbought area, with plenty of room below and a bearish trend.
KD: %K and %D form a death cross with %K value of 24. The trend is bearish. And with the lack of space below, it may face a low retracement.
In summary: During the day, the second key resistance level below is 84.1, going short at highs in the short term.
2.2 WTI Crude Oil Daily Chart
Kline: The long upper shadow candlestick breaks the first key resistance level, indicating that the price is testing the downside.
Key resistance level: The key resistance level breaks below the first key resistance level, and 84.1 below is the second key resistance level, which still has room to run below.
Key support level: below 84.1
Slow trend line: there is still room to the downside
89-day SMA: still have downside space
Bears: There is an increase in short volume, and the trend is bearish.
CCL: Bears increase positions with a bearish trend.
OBV: The OBV is turning down in the overbought area, with plenty of downside room.
Fast and slow tend lines: The fast and slow tend lines form a death cross, and are in the overbought zone, turning down with downside room.
KD: %K and %D form a death cross with %K value of 22. Underneath there is not enough room to run, and there may be a price retracement, followed by a short.
In summary: During the day, the effective support position is below 84.1, above the key resistance position is 95.1, and the price may retrace. It is recommended to pend orders near the upper channel of the sideways range and go short at highs today.
2.3 WTI Crude Oil 4-Hour Chart
Kline: The long upper shadow candlestick breaks the first key resistance level, indicating that the price is testing the downside.
Key resistance level: The key resistance level breaks below the first key resistance level, and 84.1 below is the second key resistance level, which still has room to run below.
Key support level: below 84.1
Slow trend line: there is still room to the downside
89-day SMA: still have downside space
Bears: There is an increase in short volume, and the trend is bearish.
CCL: Bulls increase positions with a bullish trend, indicating a price retracement for a short time.
OBV: The OBV is moving down in the oversold zone, with insufficient room below.
Fast and slow trend lines: Fast and slow trend lines move down in the oversold zone, with insufficient room for the downside.
KD: %K and %D form a death cross with %K value of 15. Below the running space is insufficient, and there may be a price retracement, followed by a short.
In summary: During the day, the effective support position is below 84.1, above the key resistance position is 95.1, and the price may retrace. It is recommended to pend orders near the upper channel of the sideways range and go short at highs.
Trading Recommendations
Go short on WTI Crude Oil at highs
Entry price: 91.60
Take profit: 84.5
Stop loss: 95.8
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