By Sam Nair
Oil prices failed to break above previous highs despite another round of weaker inventories mid-week and supporting comment from the OPEC indicating a stricter compliance check on all members. The market weakened after EIA released its monthly report showing that the market rebalancing may take much longer than expected mainly due to the failure on OPEC’s part to keep a check on its member’s production.
EIA said OPEC’s combined production rose to its highest level since January 2017 to 32.84 mln, up 230,000 bbls. The growth was driven by increased output from Libya and Nigeria who haven’t been a part of the original output agreement made last year. The report also showed that oil production in at least six countries increased in July despite most of them having agreed to stick to their quotas.
The lack of commitment has historically plagued the oil cartel with them only recently coming to an agreement to cut production and boost prices but the latest report shows that the situation may not have changed much. OPEC is also due to meet on August 21 to discuss ways to monitor output.
The oil market took this in a negative way and prices came crashing from highs of over $50.0/bbl. Crude Oil for near term delivery is trading at $48.27/bbl, down over a half a percent currently. The technical outlook remains unchanged for Crude Oil, we maintain a positive bias as long as prices trade above our key support zone at Rs.3060-3080.0.
We expect downsides to be limited here and buying should re-emerge but the consolidation may extend further into next week. A breakdown below our support should see the short term trend reverse and call for Rs.2900 in the near future. On the higher side, Rs.3200 is proving to be strong resistance level which prices seem unable to break above. We believe that only a daily close above this level could provide the required buying momentum to push prices higher in the short term.
(Sam Nair is the Head of Commodities Research at Celebrus Commodities Limited)