OPEC has a way of tripping up fundamental traders.
The OPEC+ group met on the weekend and unexpectedly added 548K barrels per day starting in August, against expectations they would add 411K, as they have in previous months. That was combined with a report saying they will add a similar amount in September to complete the reversal of ‘voluntary’ cuts from 8 of the world’s largest producers.
Crude opened $2 lower but quickly found a floor and steadily rose more than $2.20 to a session high of $67.91 a short time ago. That’s the best level since the aftermath of the June 23 Iran ceasefire.
WTI crude oil
The reversal and squeeze is a good sign and also note a small series of higher lows since the ceasefire. Another positive indication is that it bottomed after the ceasefire well above the June lows along with the lows from the first round of extra OPEC oil.
In total, OPEC is now on track to add back the full 2.17 million barrel voluntary cut and oil is down only $6 on the year. None of that was priced in at the start of the year and it’s a decent performance, although it’s somewhat flattered by a falling US dollar.
The good news is in the longer term for oil as weekly rig counts and surveys continue to show US shale players lowering production plans. That fits with a long-standing view in a corner of the market that shale has peaked and it will be tough to even maintain production from here, especially with oil at these levels.
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