By Lukman Otunuga, Senior Research Analyst at FXTM
OPEC and its allies will be under the spotlight on Thursday as they discuss their oil production plans for the next few months.
Markets expect the cartel to raise production by another 500,000 barrels per day in August.
It’s worth keeping in mind that back in April, OPEC+ decided to gradually lift output cuts by roughly 2 mln bpd from May to July, in addition to gradual increases agreed since August 2020.
Delegates have reportedly said Saudi Arabia and Russia have reached a tentative agreement to gradually increase oil production in the coming months. However, negotiations are still ongoing with the proposal on the table adding 2 mln bpd to the coalition’s output from August to December. This amounts to 400,000 barrels per month – less than the 500,000 expected.
Oil bulls have been on a tear so far this year thanks to the encouraging global demand outlook, with Brent futures skyrocketing by some 45% in the first half of 2021.
Stalled nuclear talks between the United States and Iran have soothed concerns over Iranian supplies returning to markets anytime soon. However, the spread of the new Covid-19 Delta variant could impact the global demand outlook and leave OPEC+ cautious.
If the group announces a smaller than expected output hike, this could push oil prices higher.
However, a higher-than-expected production increase may exert downward pressure on oil prices in the short term.
Oil is seen to offer a muted response if the cartel raises production by the expected 500,000 bpd, given the gains of late that already reflect the market’s expectations.
Dollar Index hits 3-month high
The mighty dollar entered the new month with a spring in its step with the DXY hitting three-month highs Thursday morning. Prices later retreated ahead of the US jobs report on Friday that could offer clues on the Federal Reserve’s next steps.
Over the past few weeks, the greenback has been driven by the FOMC’s surprise hawkish shift and concerns over the Delta Covid-19 variant which have boosted appetite for safe-haven currencies.
Looking at the technical picture, the Dollar Index is bullish on the daily timeframe with a solid break above 92.50 opening the doors towards 93.00.
Commodity spotlight: Gold
Gold is struggling to nurse the deep wounds inflicted by the Fed’s hawkish surprise almost two weeks ago.
The precious metal has failed to push back above $1800 thanks to an appreciating dollar and prospects of rising interest rates. Despite edging higher on Thursday, the upside could be limited by a steady dollar ahead of the US jobs report on Friday.
The pending non-farm payrolls data could set the tone for gold this month, especially after the Fed made it clear to markets that employment is a key component in its mandate.
With prices trading below the 50, 100 and 200-day Simple Moving Averages, the technicals certainly favour the bears. Sustained weakness below $1800 could signal a decline towards $1750. Alternatively, a break above $1800 may open the doors towards $1825 and $1842.
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