Crude oil price continues to range as OPEC+ works to offset oversupply

Crude oil price closed the week 0.17% higher in another low-volume weekly trading session. Reuters reports that some OPEC+ countries will have to slash their production in August and September to offset oversupply.

Fundamental analysis: OPEC+ must cut supply

In order to balance the excessive production and output levels from May to July, certain OPEC+ countries are under pressure to cut production in the coming months. Reuters reports that some countries, such as Iraq and Nigeria, are asked to slash output by over a million barrels per day for two months to compensate.

Additional cuts are needed as these countries produced above the agreed monthly targets. In addition to Iraq and Nigeria, the understanding is that Russia, Kazakhstan and the UAE were also non-compliant. 

The understanding is that these cuts should be equivalent to 1.15 million bpd over two months. Countries that increased their production levels and therefore violated the agreement have until the end of the week to submit their production plans for August and September.

According to OPEC+, which consists of OPEC and other countries (namely Russia), the demand for “black gold” is expected to fall by 9.1 million bpd this year, which is slightly higher than previously anticipated. 

Technical analysis: Tight trading range

Crude oil price has continued to trade in a tight range. This week’s range consists of only 160 pips, the tightest since April last year. However, the price action has continued to trade in an uptrend due to the series of rising lows. 

The buyers need a weekly close above $43 to stage a more meaningful rally to the upside. Until this happens, we are likely to see choppy trading action around the $40 mark. Investors trading oil are expected to be more active once the season of summer holidays ends this month.

Summary

Crude oil prices closed barely higher in another low-volume weekly trading session. The latest media reports show that certain OPEC+ countries will have to slash their production to offset oversupply from previous months.