OPEC wants to release Russian crude oil production, what will the oil market do next?

Why did the oil market plummet from a high overnight? The reason is that the current global oil supply and demand gap is further widening, but OPEC members are discussing suspending Russia's participation in the oil production agreement in response to Russia's loss of production due to Western sanctions. As soon as the news came out, U.S. crude oil surged from $120 overnight. It fell 5 percent to around $114, erasing all of its gains this week.

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As early as this Monday (May 30), European Council President Charles Michel said on social media that the EU has reached a consensus on imposing an oil embargo on Russia, which will immediately cover two-thirds of the EU from Russia. Imports of oil and crude oil imports to Russia reached a 90% reduction at the end of the year. The EU's sanctions against Russia's oil means that Russia's supply gap in the second quarter is expected to increase to more than 3 million barrels per day, and the global oil supply and demand gap will further expand

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At the same time, as the price of natural gas in the UK skyrocketed in Europe, the summer driving season in the United States and the opening of Shanghai in China, the global oil supply and demand gap showed a further expansion momentum. U.S. crude oil benefited from this yesterday's intraday rebound and touched $120, a new level since March 9. A new high in the past three months.

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The initial value of the euro zone's annual CPI in May released on Tuesday (May 31) accelerated to 8.1%, exceeding the expected 7.7% and hitting a new record high. Energy prices climbed again to push inflation higher, while food prices also rose strongly. The EU's sanctions on Russia's seaborne oil are widely believed to have intensified expectations that oil prices will remain high and will delay the decline in headline inflation in the euro zone.

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Money markets have ramped up bets on a rate hike by the European Central Bank, expecting a 115 basis point hike by the end of the year, compared with 110 basis points last week. To make matters worse, high inflation and huge supply chain pressures are hurting the euro zone economy, with institutions predicting that the Russian oil embargo may push the euro zone economy into recession in late 2022 or early 2023. Greater risks to the global economic outlook may set the stage for a decline in oil prices in the second half of the year.

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The OPEC+ ministerial meeting will be held this Thursday (June 2), but on the eve of the meeting, there was news that OPEC members were discussing suspending Russia's participation in the oil production agreement, which triggered U.S. crude oil overnight from $120.0 Nearby tumbled 5% to around $114, reversing all gains in oil prices since Monday.

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According to market sources, OPEC members are considering excluding Russia from the output agreement, as Western sanctions and partial European bans start to weaken Russia's ability to increase oil production, an internal OPEC+ report this month showed that Russia 4 Crude oil production for the month was down nearly 9% from the previous month.

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Russia may lose up to $10 billion in annual export revenue due to the European Union's ban on Russian seaborne supplies or forcing Russia to sell its crude oil to Asia at a discount. More importantly, Russia’s sale of oil at a discount has seized the market share of other OPEC members. The market is worried that this move may reignite the 2020 epidemic, which is an “oil price war” between Russia and Saudi Arabia. At that time, oil prices fell into negative territory. .

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Coincidentally, according to a Reuters survey, the 10 OPEC members bound by the production increase agreement produced 24.73 million barrels per day in May, an increase of 280,000 barrels per day from April and higher than the 274,000 barrels per day required by the production increase agreement. , for the first time since February. At the same time, the monthly report released by the U.S. Energy Information Administration on Tuesday (May 31) showed that U.S. oil production in March also increased from 11.3 million barrels per day in the previous month to 11.7 million barrels per day, the highest level since November last year. .

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The above data shows that oil demand has gradually recovered under the control of Russia's oil exports, which makes OPEC members willing to increase production. Next, investors can focus on the specific news released by the OPEC meeting, which is expected to affect the trend of oil prices.

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As the supply side is increasing and facing increasing pressure, crude oil fell sharply from the $120 mark to the $115 mark overnight, reversing all gains since this week. From a technical point of view, oil prices are now back at the strong support of $114. Although the short-term decline is rapid, the upward trend line has not been destroyed and is still in the process of rising. Before the trend line is broken, oil prices are still biased towards high levels. The market outlook mainly focuses on the resistance in the upper 120-122 area, and the support mainly focuses on $114. If the support quickly breaks down and falls below the rising trend line, then look for a callback around 111-108 below.