OPEC+ increases pressure on oil market bears

05 June 2023 232
OPEC+ increases pressure on oil market bears

Brent ended last week with a strong rally, as indicated in the previous forecast. Mindful of the unexpected OPEC+ decision to cut production at the April meeting, not many bears decided to keep short positions in oil over the weekend. And while the current rise in the price of oil is no match for the increase by more than 6% two months ago, there is still a chance to reach the level of 78.5 and 80.


Starting from July Saudi Arabia decided to voluntarily reduce oil production further by 1 million barrels per day. After long negotiations between OPEC+ countries, Prince Abdulaziz bin Salman, Saudi Arabia's Energy Minister, announced that any measures will be taken to support oil market stability. According to the minister, the agreed production cut for July could be extended in the future.


Vivek Dhar, head of mining and energy commodities research at Commonwealth Bank of Australia, said Saudi Arabia's voluntary production cuts are an important step to protect the market from falling prices. Most analysts expected OPEC+ countries to maintain oil production quotas unchanged, but Saudi Arabia gave up some of its market share to stabilize prices.


In addition, OPEC+ will cut production by an additional 1.4 million barrels per day starting in 2024. The actual production cuts are unlikely to be as large, since Nigeria, Angola and some other exporting countries have not met their quotas. However, this in any case means strong support for oil prices.


In accordance with the current momentum, the next target for Brent price is at 78.5. If it is broken out, the next target is going to be at 80, where the resistance of the sellers will surely increase.


The following trading strategy can be suggested:


Buy Brent oil in the range of 77.5–78. Take profit 1 — 78.5. Take profit 2 — 80. Stop loss — 76.5.


Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.

This content is for informational purposes only and is not intended to be investing advice.

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