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Brent Crude oil price update: tailwinds accrue for oil

EU leaders closer to finalizing ban on Russian seaborne oil; Brent crude oil technical levels analyzed and OPEC+ to meet on Thursday to set production quotas.

Source: Bloomberg

On Monday and Tuesday this week delegates from EU member nations will meet in Brussels to discuss the 6th round of sanctions on Russia, which is being held up by the issue of banning Russian oil imports via pipeline to the landlocked Hungary, Slovakia and the Czech Republic.

According to text seen by Reuters, seaborne oil sanctions are set to go ahead with exemptions for pipeline delivery to Hungary, Slovakia and the Czech Republic. Leaders aren’t ready to finalize the terms of the temporary exception on Monday afternoon and it is not clear when this will be. Estonia’s Prime Minister Kaja Kallas was quoted as saying, 'We’ll try to reach an agreement by the summit in June, this is a realistic approach for now.' The next summit is scheduled for June 23 -24.

Refining margins send oil prices higher

Oil prices have been sent even higher as a result of massive refining margins for diesel and gasoline in the US and Europe. Driven by the cutoff in Russian oil supply, refining margins – also known as ‘cracks’ - have soared in Nigeria, the US and Northwest Europe, elevating fuel prices at the pumps.

Brent crude oil technical levels

Brent crude oil prices have attempted to breach a rather elusive level of 114 three times in recent weeks and has finally prevailed on the fourth time of asking. Prices now test the underside of the zone of resistance (115.50 – 118.50). A softer dollar and the reopening of Shanghai after a month of lockdowns has crude prices alongside increased crack spreads. However, recession concerns in the US have grown in recent weeks after US real GDP contracted in the first quarter and large US retailers (Walmart and Target) have warned about a drop off in consumer demand.

Support naturally occurs at the 114 level followed by the psychological 110 level.

Brent crude oil daily chart

Source: TradingView

The above-mentioned zone of 115.50 to 118.50 is historically important as it halted gains multiple times throughout 2011 -2014. There were instances where price action broke above, however these were rather short-lived when viewed on the longer time frame.

Brent crude oil monthly chart

Source: TradingView

OPEC+ set to meet on Thursday

OPEC and its allies, known as ‘OPEC +’, will meet on Thursday to set the output targets for July. Reports suggest that OPEC + production fell well short of its production targets (around 2.6 million barrels per day (bpd) in April. OPEC + are set to stick to the agreement to increase production by 432,000 barrels per day for the month of July despite already falling short of production targets over the last year.

OPEC+ officials have insisted that the oil market remains balanced, with no signs of any shortage of crude, despite lower than anticipated Russian output amid strong global demand. The group has instead apportioned blame to the lack of refinery capacity as the main reason for steep gasoline and diesel prices, along with geopolitics.

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