How much can OPEC raise production?

Is Oil Resuming the Uptrend or Is This Just A Retrace?

Posted Tuesday, June 28, 2022 by
Skerdian Meta • 2 min read

Crude Oil was showing extreme resilience since March, as geopolitical tensions increased, although it has been on a bullish trend for more than two years, with the US WTI increasing above $123. But, more than a week ago we saw a strong reversal and crude Oil lost around $10 in a day.

The bearish momentum continued last week and US WTI Oil fell toward $100, but the 100 SMA (green) held as support on the daily chart. In the last several days we have seen a decent bounce after the doji candlestick last Thursday. Although, buyers are now facing the 20 SMA (gray) on the H4 chart, after rumours that OPEC doesn’t have spare capacity to increase production.

US WTI Oil Daily Chart – Is the Pullback Lower Over?

Oil buyers are facing the 20 SMA now

Part of OPEC’s power is its ability to make markets believe it can control prices. Lately, they’ve been offering hints that they have more spare capacity. The main reason to do this is to bluff producers elsewhere on the usefulness of drilling more. Why drill and explore when Saudi Arabia can just pump?

On the other side are a group of oil traders and analysts who have been saying for years that OPEC doesn’t have the spare capacity that it’s touted. At most, they can surge production for a few months but the point of that capacity is to counteract some kind of supply crisis. Now, the truth is out. Reuters reports that French President Emmanuel Macron was overhead on the sidelines of the G7 talking with US President Biden.

“I had a call with MbZ,” he said, referring to Sheikh Mohammed Bin Zayed is the President of the UAE. “I’m at a maximum, maximum (production capacity). This is what he claims.”

“And then he said (the) Saudis can increase by 150 (thousand barrels per day). Maybe a little bit more, but they don’t have huge capacities before six months’ time,” he said.

Officially, Saudi Arabia is producing 10.5 mbpd and has 12-12.5 mbpd of capacity. The UAE is producing at 3 mbpd and has capacity for 3.4 mbpd. I don’t ever expect the UAE or Saudis to admit publicly that they’re out of spare capacity, so this is the best we’re going to get. But if it’s true, it’s wildly bullish for crude.

US WTI Crude Oil Daily Chart

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