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Supply Curbs Extended

Crude prices have turned lower into the end of the week following yesterday’s OPEC+ meeting.  The market was widely expecting the group to announce an extension of current production restrictions through next year with some speculating that perhaps we might see a deepening of current cuts. However, reports of tensions within the group ahead of the meeting were brought to light during the virtual event yesterday.
 

Tensions Growing

OPEC announced that its members would be making further, voluntary cuts across 2024. However, in a break from tradition, the group noted that individual members would be announced respective cuts in due course rather than adhering to a group-wide quota. The move reflects the divisions within the group with several members reportedly pushing back against calls to extend cuts through next year.
 

Saudi Arabia & Russia Ramping Up

De-facto leader Saudi Arabia announced it would be extending its own voluntary cuts of 1 million bpd through Q1 2024 with Russia noting that it would also be increasing its export restrictions to 500k bpd from 300k bpd through next year.
 

Weak Market Impact

Despite the measures announced, the takeaway from the market looks to be that tensions within OPEC are likely to undermine the effectiveness of these moves. With OPEC no longer enforcing a group-wide quota, adherence is likely to be much lower than usual meaning that market impact will be weakened. As such, oil prices look vulnerable to further downside, particularly if we see any further recovery in USD near-term.
 

Technical Views

Crude

(Click on image to enlarge)

For now, crude prices remain capped by the 77.64 level which looks to be the neckline of an inverse head and shoulders pattern. If bulls can break above, this might well signal a channel break, putting focus on 82.59 next. To the downside, 66.79 is key support below current 72.61 lows. 

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