USOil Analysis

The Organization of the Petroleum Exporting Countries (OPEC) and ten allies including Russia, known as OPEC + had agreed in early June to accelerate their output increases by 648,000 barrels / day for July and August.

In their latest meeting yesterday, the group stuck with the aforementioned plan for the upcoming month and stressed the importance of adhering to it, in a decision that offered little surprises.

The oil market is tight with limited spare capacity, but high prices exacerbate inflation, which puts pressure to central banks for aggressive monetary tightening, further fueling fears of stagflation.

This week’s economic releases have been a bit of a mixed bag so far, since China’s PMIs showed an expansion in factory activity in June, while the country cut isolation times for inbound travelers. Headline PCE Inflation in the US steadied to 6.3% year-over-year, which is encouraging given the last CPI upside surprise, but annualized Q1 GDP contracted by 1.6%, more than previously estimated.

The Fed had hiked rates by a historic 0.75% last month and has hinted towards a 50-75 basis points increase in July as well, as most major central banks tighten their policy. This creates fears of stagflation, which sent USOil to its first losing month of the year and the worst since the break of the pandemic.

It now heads towards another negative week and moves back below 106.00 as we had warned from our last analysis. This exposes USOil to the 100.00 mark but further decline that would test the 200Day EMA and the broader 95.50-92.91 region would need a catalyst.

Despite the poor start to the current month and the current risk-of mood, the broader upward bias has not changed. As such we can see another push above the EMA200 (mid-111.00), although the multi-year highs from May (123.69) is distant at this stage.