Despite some contradictory reports, there is still a growing chance that the UAE will agree to a quota increase. The UAE is pushing for an increase in the baseline production level in 2022 from 3.17m b/d to 3.65m b/d. This level is used as a reference point for the cartel’s quota allocation, so raising it would allow the UAE to produce more crude.
The market fears that production will increase by 0.5M BPD but that others will follow. Already today, Iraq has announced that it intends to seek a quota increase for itself. There is no doubt that this is just the beginning.
Separately, Saudi Arabia is reducing its voluntary production cuts, which it resorted to earlier this year to support prices.
With indirect ways, the cartel is ramping up production and will do so further, shifting the focus from maximising price to maximising revenues. OPEC has no other choice.
After a period of stagnant production near 11M BPD for the previous 12 months, the US has started to ramp it up. Figures published yesterday for last week showed a rise to 11.4M.
At this stage, US production growth has not kept pace with the recovery in demand, and commercial inventories continue to fall. This decline in stocks is temporary as the US has vast potential to ramp up production, which was as high as 13.4M before the pandemic hit.
A look at the oil chart from a technical analysis perspective suggests that the bullish momentum from early July is wearing off, with new highs in price accompanied by lower RSI highs.
We will get a stronger signal to downside trend reverse after a break below the 50-day average, which now passes through $71.50 per barrel Brent. Without this confirmation, the bullish trend in oil persists, and the slippage and consolidation could only be a prologue for new growth momentum, as was the case in March and May.