OPEC+ Meeting: What you need to know
All eyes are on the upcoming OPEC+ meeting on July 1st where the cartel will discuss the future of oil production amongst themselves. Since August 2020, the coalition of 23 oil-producing nations have gradually eased supply curbs as recovering global economic conditions brightened the outlook for global oil demand.
Markets are expecting OPEC+ to raise production by another 500,000 barrels per day (bdp) in August.
Brent up over 45% year-to-date
Before we discuss how oil may react to the OPEC+ meeting outcome, it's worth covering why oil prices are appreciating. Bulls continue to derive ample strength from the encouraging global demand outlook. As more people in the United States and Europe are travelling for their summer vacations and factories across the globe continue to boost production, this certainly bodes well for the already positive demand picture.
Looking at the supply side of the equation, OPEC+ alliance which collectively controls about half of the global crude production remain cautious when it comes to raising output. Back in April, the cartel decided to gradually lift output cuts by 2.1 million barrels per day from May to July as demand improved. According to a report from Bloomberg, OPEC+ has restored roughly 40% of the almost 10 million bpd they cut when demand evaporated last year. Essentially, the cartel has the ability to boost production if needed but this decision is likely to be influenced by global economic conditions.
Stalled nuclear talks between the United States and Iran have soothed concerns over Iranian supplies returning to markets. However, this remains a risk for oil prices and something on the cartel's radar. Should the nuclear talks reach a breakthrough, this could result in Iran dumping an estimated 2 million bpd to customers across the globe. Such a development could impact OPEC+ efforts to re-balance markets, with rising production from the coalition and Iran seen sending oil prices lower.
How will oil react to the OPEC+ production decision?
Oil may offer a muted response if OPEC+ decides to raise production by 500,000 barrels per day in August. Should the cartel announce a higher-than-expected production increase, oil prices could come under pressure in the short term. However, a smaller than expected output hike or even a delay to increase production is likely to push oil prices higher.
Taking a look at the technical picture, Brent remains heavily bullish on the daily charts despite the recent pullback. A strong weekly close above $76.00 could open a path towards $80.00. Alternatively, a breakdown below $74.00 may inspire a decline towards $72.00.