Yesterday, the OPEC+ extended oil supply cuts for the third quarter and set a schedule for removing them over the next 12 months. The main points of the agreement and its impact on the market will be reviewed further.
First of all, the agreement is preliminary and will be revised several times. Saudi Arabia said the group can change its policy if necessary. As a result, the market response may be limited.
The alliance avoided a looming dispute over individual production capacities that was under consideration to set quotas for 2025. The deadline for finalizing this process has been postponed.
The United Arab Emirates’ production target was increased by 300,000 barrels per day, and should be phased in gradually over the next year.
Secondly, the OPEC+ agreed to extend oil production cuts as expected. The group also set a schedule for removing some of these restrictions.
The agreement extends voluntary cuts for key members for the following year, but suggests rolling back some of those cuts earlier than many OPEC observers predicted.
Saudi Arabia, Russia, the UAE, and others will extend voluntary cuts through September. The phase-out of the OPEC+ voluntary cuts will depend on market conditions.
Thirdly, a slow easing of the second set of voluntary cuts, combined with a gradual increase in the UAE’s production target, would add about 2.5 million barrels per day to the market by the end of September 2025.
The voluntary production cuts made in November 2023 will be maintained through the end of the third quarter and then phased out gradually over the next 12 months.
How did market participants react to the agreement?
Goldman Sachs Group said the decision was quite bearish given the recent rise in stocks, but UBS Group AG and RBC Capital Markets LLC expressed confidence that the alliance will continue to diligently manage the market. Trading volumes have been higher than usual this morning, but Brent oil option skews continue to signal bearish sentiment. So-called put options that profit from lower prices still have a higher premium than the opposite call options.
In general, the agreement presumably did not provide clear conclusions about the medium-term price direction, and many things will be determined by the current daily changes in the situation.
From a technical point of view, Brent oil remains within the limits of the expanding triangle, and a rebound from its lower limit, as well as the upward movement of the quotes to the level of $85 per barrel should be expected.
The overall recommendation is to buy Brent oil. Profits should be taken at the level of 85.0. A Stop-loss could be placed at the level of 78.5.
The possible loss should not exceed 2% of your deposit funds.
