OPEC+ meeting preview - a traders' playbook
The last two OPEC meetings have been short affairs, so it wouldn't surprise if we saw headlines anytime between 21:30 AEST to 22:00 AEST – so be prepared to react if the market starts to move on these headlines.
While recession fears build and China's manufacturing PMIs contract, impressively the outlook for demand growth is still holding up, with analysts expecting around demand growth of 1.7 million barrels a day in 2023. That said, many will state that there's a clear downside risk to that call and it's a factor OPEC+ will consider at today’s meeting. Supply has been increasing, with Libya and Russia increasing production, while OPEC+ added additional production hikes at both the July and August meeting, with the September increases weighted into the prior two months. OPEC+ have effectively undone the production cutbacks seen during the pandemic, and this has eased the price of crude lower.
What’s important is that OPEC output is still around 1 million bpd below the targeted quota levels. The current OPEC+ production agreement runs through to December and with the softening economic dynamics it's easy to see why the group may leave production quotas unchanged. However, with inventories at such low levels, the crude market is staring at a reasonable deficit and so a small hike in production quotas may well actually play out – a factor that has come onto the radar given Biden’s recent visit to Saudi Arabia.
BrentCrude (Spot) daily chart
(Source: Tradingview - Past performance is not indicative of future performance.
The trader’s playbook
Should we see a planned hike then SpotBrent should head back to $100 and put it on course for a test of the 14 July pinbar reversal lows of $95. This is where we could see some decent scalping opportunities given the likely demand that should kick in here.
Should quotas be left unchanged, which seems on balance to be the most likely scenario, then I’d look for an upside re-test of $108.75 – the top end of the recent range, where a break could see the 50-day MA come into play.SpotCrude will follow Brent through OPEC but will also focus on the DoE inventory report (tomorrow 00:30 AEST), where the market is looking for a drawer in both gasoline and crude inventories. We see huge support through $94, and a break here could see US crude head to a $85/80 range.
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