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Brent crude reversal hopes helped by decline in OPEC production

The OPEC monthly report has highlighted the extent of the output decline seen in response to the attacks on Saudi operations in September. Could this help build a bottom for Brent following recent declines?

Crude prices rallying after OPEC report

Crude prices are on the rise today, as the Organisation of the Petroleum Exporting Countries (OPEC) monthly report shed light on exactly how much the recent Saudi Arabian attacks have impacted output over the past month.

The group did see a drop-in output, falling by 1.3 million barrels per day (mbpd) which represents around 4-5% of the total output compared with the August number. For the most part that decline was a representation of the decline in Saudi production, with their output declining by a substantial 1.28 mbpd for the month. This represents a 13% drop for the month of September. Certainly, it could have been worse, with the attacks reported to have knocked out half of the Saudi production capacity. These figures do highlight how quickly the likes of Aramco managed to get operations back online.

However, it is notable that we did not see any other OPEC members pick up the slack, with global supply likely to have declined as a result.

OPEC crude oil production

According to secondary sources, total OPEC-14 preliminary crude oil production averaged 28.49 mb/d in September, lower by 1,318 tb/d m-o-m. Crude oil output decreased mostly in Saudi Arabia, Venezuela, Iraq and IR Iran, while it increased mainly in Libya, Angola and Congo.1

2017 2018 Quarter one (Q1) 2019 Q2 2019 Q3 219 July 2019 August 2019 September 2019 September/August
Algeria 1,047 1,042 1,026 1,019 1,021 1,027 1,017 1,018 1
Angola 1,634 1,505 1,443 1,420 1,394 1,385 1,387 1,411 24
Congo 252 317 326 332 326 323 321 335 14
Ecuador 530 519 526 529 541 535 541 547 6
Equatorial Guinea 133 125 115 114 121 121 120 124 4
Gabon 200 187 209 212 205 208 209 199 -10
Iran, I.R. 3813 3553 2725 2407 2191 2218 2193 2159 -34
Iraq 4446 4550 4635 4705 4749 4736 4785 4724 -60
Kuwait 2708 2745 2715 2693 2659 2667 2651 2660 9
Libya 811 951 965 1154 1099 1076 1060 1164 104
Nigeria 1658 1718 1736 1786 1846 1805 1875 1859 -16
Saudi Arabia 9954 10,311 10,019 9769 9769 9687 9844 8564 -1280
United Arab Emirates (UAE) 2916 2986 3066 3063 3079 3074 3081 3082 1
Venezuela 1911 1354 975 776 710 755 727 644 -82
Total OPEC 32,014 31,864 30,481 29,978 29,314 29,616 29,809 28,491 -1318

Crude oil price technical analysis

Crude prices have been on the rise following this decline in September output, with Brent crude regaining ground following overnight losses.

The weekly time frame best highlights the importance of current price action, with the past five months of downside providing us with a fall into both trendline and 76.4% Fibonacci support. That confluence of support adds gravity to the possibility of a bottoming out from here, with a decline below $55.80 needed to begin bringing the bears back into prominence. Until then, there is a good chance we are building a base before we push higher once again.

The intraday picture highlights the gradual base that seems to be building, with the hourly chart showing the current push towards the $59.18 resistance level following a higher low established this morning. With that in mind, watch for a break through $59.18 and $59.51 to provide bullish confirmation, with a phase of upside looking likely should such a break occur.

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