For today, have a look at the situation with Brent crude oil prices. With the recent OPEC+meeting, let's get back to basics.
OPEC+ declares production cuts to support prices. But since many members are looking to maximize oil export revenues, they have an incentive to push for the highest possible production quota.
Production capacity provides a reference point from which production targets are set and cuts are imposed. The cuts are then allocated in proportion to capacity levels.
Saudi Arabia, for example, has a stated capacity of 12 million barrels per day (bpd).
However, under the current quota, the kingdom produces about 9 million bpd, or 75% of its capacity level.
Saudi Arabia, OPEC's de facto leader and the world's third-largest oil producer, has said countries that have expanded capacity should be rewarded for their investment.
Countries that have built more capacity, such as the United Arab Emirates (UAE), would like to use some of it to earn a return on their investment.
Other countries like Nigeria have struggled to meet their existing targets due to lack of investment and maintenance.
Even if countries fail to meet their targets, they will not like the reduction in their nominal capacity because it could mean a reduction in their production quota.
That is, by and large, in the pursuit of increasing their own production capacity and increasing the quota, the member countries of the alliance are contributing more to the growth of supply in the oil market and playing on the side of the bears.
This is confirmed by the results of the last meeting, where the countries agreed not just to reduce production limits, but also to shorten the term of previously existing agreements.
Today, on the technical aspect, Brent oil has entered the overbought zone and has formed a bearish divergence with the RSI indicator, which points to a probable decline in prices.
The overall recommendation is to sell Brent oil.
Profit could be taken at the level of 80.4. A stop loss may be set at 83.0.
The value of possible loss should not exceed 2% of your deposit funds.
This content is for informational purposes only and is not intended to be investing advice.
