OPEC and non-OPEC leaders are wrapping up their meeting in St. Petersburg Russia and it looks like it has yielded some positive results. Not only did Nigeria agree to cap their oil production output at 1.8 million barrels a day, the Saudi Oil Minister Khalid al Falih, speaking after the meeting broke up, seemed optimistic that the path they were on would eventually get global supply back in balance.
For oil and the markets, Russia is all the rage. There is the big OPEC/non-OPEC pow-wow in Russia and reports that Special Prosecutor Robert Mueller is opening an investigation into President Donald Trump's business transactions with Russia one day after the President said that that would be a red-line for him.
As we enter the business end of the week, the United States will be in focus with a large number of data scheduled to be released including some important labor market numbers and surveys on the services sector.
Crude oil prices sold off almost 5% on what many people attributed to a story that some unnamed Russian oil company source said that Russia was against a production cut. Today those sources are still unknown, but really the sell-off in oil probably had more to do with the fact that Saudi Arabia cut prices to Asia as the kingdom was losing market share to Iraq and Iran that has been raising output and taking away business from the Saudis.
Crude oil prices are under pressure after an unconfirmed report was released that Russia would oppose and additional output cut and instead would stay the course on current cuts. Yet, an unsourced story from Bloomberg was enough to break oil that had been on a streak of eight up days in a row, one of the best runs in oil in seven years.
Brent’s ability to reclaim the broken $49.90 per barrel support level two weeks ago was the first and key bullish trigger, which has since led to further technical follow-up buying. As a result, the London-based oil contract has risen above both its 50- and 200-day moving averages at $52.40 and $52.00 respectively, as well as prior resistance at $52.70. Thus, the old resistance area between $52.00 and $52.70 is the key support zone to watch heading into and in the immediate aftermath of the OPEC meeting.
Crude oil is struggling even after the Energy Information Administration (EIA) reported the sixth drawdown in crude oil in a row and the fact that U.S. oil production dipped for the first time in 13 weeks. The bears argue that while we have seen declines they will have to be much larger to drain off excess supply.
When will the global oil market get in balance? It already has and according to the International Energy Agency, that process is accelerating. The global oil market has achieved so-called market balance but much work remains to reduce excess global oil supply.