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Oil Supply Constraints Trump Lower Demand

  • Crude oil has rebounded more than 2% after falling 8% in June, with today's bump higher coming on renewed supply limitations more than offsetting lower demand implications from US slowdown fears.
  • OPEC production dropped 100kbpd from May’s revised total, having planned to boost output by about 275kbpd. 10 members are pumping far less than called for under the deal, with Libyan supply dropping 170kbpd due to unrest in the country along with 80kbpd in Nigeria with outages and maintenance curbing output.
  • This comes against a backdrop of low liquidity, with Bloomberg reporting that WTI and Brent open interest is at six year lows.
  • WTI is +2.2% at $108.12. Initial support is now formed at the earlier intraday low of $104.56 whilst resistance is eyed at the 20-day EMA of $110.27 required to break to confirm a resumption of the recent recovery.
  • Option strikes have been heavily concentrated in $126/bbl and $125/bbl calls.
  • Brent is +2.1% at $111.29, sitting off Wednesday’s high of $116.24 that forms initial resistance.
  • Gold is +0.04% at $1807.98 off a session low of $1784.57 with offsetting impact from a stronger dollar but materially softer yields. It briefly cleared a bear trigger at the May 16 low of $1787.0, a clear break of which would open key support at $1780.4 (Jan 28 low) before retracing.

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