Once again it has become evident that the Organization of the Petroleum Exporting Countries (OPEC) has certain problems controlling the price of oil in an increasingly diversified market. This weekend’s meeting aimed to give an image of solidity, prolonging the cuts and showing unanimity. Finally, what has happened is that crude oil has sunk more than 4% and fallen into the ‘technical’ abyss. Hidden in the details of the OPEC meeting were some messages that did not convince the market, such as the reversal of voluntary cuts (a part of the cuts) starting in October of this year. Brent is in the $77 area and West Texas falls to $73 a barrel.
Although it may seem contradictory, the announcement of the extension of the cuts has caused a new earthquake in the crude oil market. The OPEC+ meeting (OPEC plus Russia and its allies) that took place this Sunday has made a dent in oil prices. The organization agreed maintain its production cuts until 2025However, the voluntary discounts applied by some of its members could progressively end as of October of this year, which has been enough to unleash a wave of sales in crude oil that puts Brent and West Texas in a somewhat complex technical situation.
Tamas Varga, an analyst at PVM Oil, explains it very clearly in a note for clients published this morning: “The market reaction is depressing for anyone who produces oil and generates great joy for consumers. If you compare the levels of prices at the end of last week with yesterday’s closing prices, it is almost obvious that the announcement of A gradual reversal of voluntary cuts was primarily responsible for letting the bearish genie out of the bottle.“explains this expert.
OPEC’s own statement published on Sunday presented the data that has sunk crude oil prices on Monday and today. In a table you can see how The cartel countries will be able to increase their oil production little by little from October this year to reverse the voluntary cuts that were agreed upon in November 2023. It is true that OPEC has agreed to extend part of the cuts, but in aggregate terms what the cartel has done is begin to open the oil taps.
For example, as revealed by the OPEC table (represented in the news graph), by January 2025 Russia will already be producing 100,000 more barrels each day than currently, but the fact is that Saudi Arabia will be pumping almost 500,000 more barrels, while the United Arab Emirates will produce around 100,000 more barrels as well. This reversal of the cuts will begin in October of this year, that is, in just over four months.
The technical abyss of Texas and Brent oil
Oil was staring into the ‘technical abyss’ a few weeks ago, as published by elEconomista.es. Crude oil has fallen through this abyss and is now seeking to cling to some of the protrusions of this ‘cliff’ that could sustain its price. The technical situation is fragile: “Crude oil in its West Texas reference has lost in the short term the lows it set last month at $76.30which until now had served as support that slowed the advance of the downward pressure,” explains Joan Cabrero, Ecotrader advisor, in statements to elEconomista.es.
“Its transfer suggests a continuity of the falls towards the base of the broad triangular figure that has been limiting the price of oil during the last year and a half, which appears at 70-71 dollars. Whether we can continue to see this depends on the maintenance of this support a more lateral consolidative context “that bearish towards the 2023 lows around $63”according to Joan Cabrero.
This decision already damaged Brent and West Texas on Monday (the benchmark oil prices in Europe and the US respectively) and both suffered drops of more than 4% in the session. This Tuesday, oil continues to fall in price. Brent drops to $77 per barrel and barely It is 2% from the lows of the year which marked at the beginning of 2024 at $75.89. For its part, West Texas falls to $73.
Despite everything, Tamas Varga believes that the OPEC agreement will be positive in the medium term for crude oil. Although markets are now focused on the reversal of the voluntary cuts, which will gradually add some 2.2 million barrels of crude oil, the extension of the mandatory cuts will help support the price of crude oil, especially as the season arrives. high gasoline and diesel consumption with the summer holidays.
The rest of raw materials also suffer falls of around 1%, which intensify above this figure in the case of copper and iron. At the moment, only aluminum and copper manage to save the positive session. The latter rebounds above 1%, after the intense collapse of almost 8% that it suffered after reaching its historical maximum price.
