OPEC+ was plunged into crisis as a worsening fight between Saudi Arabia and the United Arab Emirates blocked an oil supply increase. What happens next will determine whether the breakdown of talks — which sent crude climbing toward $80 a barrel — could escalate into a conflict as bitter and destructive as last year’s price war.
At stake is the stability of the global economic recovery amid growing inflationary pressures, and the ability of the producers’ alliance to retain its hard-won control over the oil market.
From international oil majors to Middle Eastern petrostates, the market will be watching keenly in the coming days as Riyadh and Abu Dhabi publish prices and negotiate volumes for their August crude supplies. The fear that events could spiral further out of control was evident.
“We do not want a price war,” said Iraq’s Oil Minister Ihsan Abdul Jabbar. “And we do not want oil prices to rise over the current levels.”
After several days of tense talks, OPEC+ abandoned their Monday meeting. A disagreement over how to measure production cuts upended a tentative deal to boost output and swiftly devolved into an unusually personal and public spat between Saudi Arabia and the UAE. The last time those two countries clashed over oil policy, in December 2020, the UAE floated the idea of leaving the cartel. That dispute ended in a truce, but the breakdown in negotiations this time around was so severe that the group couldn’t even agree on a date for its next meeting.
The immediate consequence of the collapse in talks is that the output hike expected for August will not take place, leaving the market short of barrels just as the global economy recovers from the Covid-19 pandemic. In response, crude jumped above $77 a barrel in London for the first time in more than two years.
The week started in slow motion amid a holiday in the US that kept local markets closed. The dollar index held around Friday’s lows, but near multi-month highs. Further declines seem unclear.
The euro pair settled at 1.1860 despite the upbeat Markit PMIs. Loonie ended the day with modest gains at 1.2338. Both antipodean pairs hovered around the familiar price level, as well as the USDJPY.
GBPUSD climbed a little bit amid a dull market as UK Prime Minister Boris Johnson announced all restrictive measures would be lifted on July 19, including the use of masks and social distancing rules. He also noted that people will no longer be instructed to work from home, despite surging coronavirus cases. A final decision will be made on July 12. The country reported an increase in hospitalizations in the last 48 hours, although the levels are still far below the peaks from last year.
Crude oil prices soared as the OPEC+ meeting was postponed once again due to conflict between members on an increase in oil output. WTI trades at $76.30 a barrel, while Brent closed the day at $77.00. The gold price went up. The bright metal is currently traded at $1,791 a troy ounce.
Concerns about the Delta variant spreading in Europe and the US had a limited impact on currencies. However, the pandemic continues to take its toll on economic progress worldwide. A new strain coming from California, now named Epsilon, seems to be resilient to vaccines and may become a risk-off catalyst.
XAUUSD (Daily Chart)
Gold clings to small daily gains around 1791 on Monday, a subdued market due to the holiday. The dominant outlook remains bearish as gold continues to trade below the descending trend line since July 2020. Nonetheless, the intraday bias looks to turn bullish in the near- term after the support level is held. At the time of writing, gold is expected to move to the upside as the MACD happens to turn positive whilst the RSI bounces from the oversold territory, giving bulls some hope to turn positive. Gold is aiming to contest its next resistance at 1829.14. If gold ends up trading above 1829.14, then the bullish momentum will be reconfirmed in the short-run as it will trade above the 20 SMAs.
Resistance: 1829.14, 1876.18
Support: 1771.95, 1676.89
EURUSD (4- Hour Chart)
EURUSD trims gains but remains above 1.1850 as the price action is quiet due to the holiday in the US. On the 4- hour chart, the dominant trend continues to favor the downside because the pair still falls within the descending channel; however, since the price of the pair has risen above the 20 simple moving average, the rebound seems to have some potential. From the technical indicators, the upside momentum looks to be in control as MACD appears to turn positive and the RSI is in a neutral position, giving the bulls room to extend upward. The next resistance on the upside is 1.1919, thus the pair will face some barriers around the region. On the downside, if the pair fails to move to the north but slides below 1.1837, then the pair will resume bearish mode.
Resistance: 1.1919, 1.1985
Support: 1.1837, 1.1704
GBPUSD (Four- Hour Chart)
GBPUSD edges higher toward 1.13850, benefiting from the UK’s reopening optimism. After the pair breaks the descending trendline upward, the momentum on the 4- hour chart has turned to the upside, providing some potential for the bulls. Short-term bullish momentum is supported as the pair has traded above 20 simple moving averages. As of now, if the positive price action stays unchanged, the resistance level at 1.3926 will be the place that the pair is aiming for. The bullish move is expected to continue since the MACD is positive and the RSI of 56 has not reached the overbought territory, giving the bulls room to move further.
Resistance: 1.3926, 1.4007
Support: 1.3793, 1.3675