Can Crude Oil Hold 200-Day MA Despite OPEC Production Surge

OPEC+ announced plans to raise oil output by 411,000 barrels per day in August, marking the third consecutive monthly increase of this magnitude. This supply boost reflects the group’s confidence in demand recovery but has intensified selling pressure on crude prices, which have already been declining due to the recent Israel-Iran ceasefire removing geopolitical risk premiums.

The production hike raises concerns about the market’s ability to absorb additional barrels amid weakening prices.

Geopolitical Risks Fade, Removing Key Price Support

The 12-day conflict between Israel and Iran initially pushed Brent crude prices above $80 per barrel, as markets factored in potential supply disruptions. However, the ceasefire announcement rapidly eliminated these risk premiums, triggering a sharp 12% weekly decline in oil prices.

Analysts note that the market has largely shifted back to fundamentals, with geopolitical tensions no longer providing a price floor.

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Demand Signals from China and Inventory Draws Offer Mixed Outlook

Despite price weakness, China’s record imports of 1.8 million barrels per day of Iranian oil highlight robust underlying demand in Asia. Additionally, U.S. government data shows crude and fuel inventories are falling, supported by rising refining activity and consumption.

European and Asian middle distillate stocks have also declined, suggesting tightening supply-demand balances. These bullish signals contrast with the bearish impact of rising OPEC+ supply.

Technical Support at the 200-Day Moving Average Is Crucial

After tumbling from highs above $80, crude oil prices tested the critical 200-day moving average near $65.15. Despite midday selling pressure following the OPEC+ announcement, prices recovered to close higher, indicating potential oversold conditions and short-covering.

Holding this technical support is essential for any sustained recovery, with $67.44 and $71.20 identified as key resistance levels if momentum builds.

U.S. Drilling Activity Decline Provides Some Upward Pressure

U.S. oil rig counts have fallen for four consecutive months, reaching lows not seen since October 2021. This decline in drilling activity suggests reduced future supply from U.S. shale producers, which could help balance the market over time.

However, the immediate impact of OPEC+ production increases and fading geopolitical risks currently dominate price movements.