OPEC+, a real central bank for oil markets

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03/22/2019 | 04:55 pm
Despite some headwinds, such as worries about the robustness of oil demand, oil prices are rising, supported by the work of OPEC+, which could easily be compared to a central bank. The speeches from the representatives of the extended cartel remain identical on one point, namely to anchor oil price expectations upwards.

As such, the ground is being prepared for an extension of oil quotas, which is responsible for the tireless rise of American shale oil. The OPEC+ alliance is indeed concerned about market congestion, which will take longer than expected to rebalance supply and demand. In this way, everything is done to avoid a further price relapse and to preserve market stability. As a result, if the market will not finally be rebalanced by the end of this first quarter of 2019, the alliance implies that it will be rebalanced at all costs, without setting a precise timetable.
 
Evolution of Iranian crude oil production and exports - source: US Energy Agency - Click to enlarge
 

In the shorter term, operators remain attentive to the fall in Venezuelan production, which has been wiped out by an increasingly turbulent economic context. Iranian production is also being monitored, as it has been affected by US sanctions (see graph above). However, in a more distant time horizon, the dynamics recorded across the Atlantic balance this picture. The International Energy Agency expects that US exports will overtake Russian exports in the coming years, to reach a level close to Saudi Arabia, at nearly 9 million barrels per day; a real historical shift in the weight of the United States on the oil markets.
 

Forecast of US, Russian and Saudi crude oil exports - source: International Energy Agency

 
Technically, in weekly data, there is no sign of a slowdown in the price rebound. The good performance of USD 63, followed by a crossing of USD 67, paves the way for a future test of USD 70. Beyond the symbol, this level constitutes a major resistance and coincides with the 50-period moving average. In this context, only a return below USD 63 would weaken the current buyer still in force.
Jordan Dufee
MarketScreener.com 2019
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