Brent oil drops 2 percent in Asia
- Brent is flashing red in Asia, possibly because traders expect output to rise, courtesy of OPEC deal.
- PEC agreed on a “nominal” production increase of 1 million barrels a day.
Brent oil fell in Asia as traders price-in an expected output increase that was announced by the Organization of the Petroleum Exporting Countries (OPEC) on Friday, according to Reuters.
However, the narrative lacks substance as the OPEC announced a less-than-expected production hike. Also, the 600,000 barrels per day hike in output will likely not have a big impact on demand-supply dynamics as the cartel, including non-OPEC members and Russia have since 2017 cut output by 1.8 million barrels per day (bpd).
Further, OPEC's language was vague. And last but not the least, the structure of the deal is such that each country can only increase production on pro-rata basis. Accordingly, the only country which can boost output is Saudi Arabia.
Clearly, the structure and the language of OPEC deal is biased to the oil bulls. That said, the rising trade war fears could have weighed over oil prices in Asia.
At press time, Brent oil is trading at $74.00 - down 1.72 percent on the day.
Brent oil Technical Levels
Resistance: $74.34 (5-day MA), $74.80 (10-day MA), $75.76 (50-day MA).
Support: $73.66 (previous day's low), $73.04 (June 21 low), $71.26 (100-day MA).