Members of the Organization of the Petroleum Exporting Countries and their allies (the so-called OPEC + group) met this afternoon, but decided to postpone any decision until Friday, as the terms of the production agreement have not yet been agreed. And that’s because the UAE doesn’t seem to agree with everything that’s being proposed.
As far as we know, all indications are that OPEC + has decided to continue the gradual opening of its taps. After placing an additional 2.1 million barrels per day on the market in the first seven months of the year, several sources told Reuters and Bloomberg that a decision will now be made to increase their exports by another two million barrels per day between August and December.
Crude oil prices have reacted sharply to these signs, trading at October 2018 highs, expecting more black gold to continue to flow gradually – thus easy to satisfy at a time when demand continues to rise in the context of the economic recovery.
The “benchmark” for the US West Texas Intermediate (WTI) for August delivery continued to climb 2.74% to $ 75.48 a barrel. The July contract for Brent crude from the North Sea, traded in London and the benchmark for European imports, will rise 1.88% to $ 76.02. When rumors of production volumes began to circulate, the price soared more than 3% in New York and more than 2% in London.
The rise in prices was helped by the fact that the increase in production, determined for August, could be 400,000 barrels per day, when it was expected to reach half a million barrels per day. According to the agreement, which will be on the table, every month – from August to the end of the year – 400,000 barrels per day will be delivered, which is two million.
Thus, the oil market has many opportunities to increase production – and the additional two million barrels per day until December will not be able to meet the expected demand for consumption. According to OPEC, world oil supplies in the fourth quarter will be 2.2 million barrels per day below demand.
OPEC + precautions to prevent market flooding are associated with the resumption of new cases of COVID-19 in many regions, especially in Asia and Europe. In addition, the Iranian factor must be taken into account, since the resumption of the nuclear deal will lead to the lifting of sanctions against Tehran and the appearance of more black gold on the market.
The general expectation of increased consumption this year and a consistent drop in crude oil inventories in countries such as the United States and China, where refineries are operating at full capacity, have spurred price support, and the likely OPEC + decision removes fears of inflationary pressures – because if large producing countries will not choose more, prices may rise.
It should be recalled that in May last year, in response to a sharp drop in demand as a result of restrictions caused by the pandemic, OPEC + agreed to cut supply by 9.7 million barrels per day. The idea is to end these production phase-out efforts by the end of April 2022. The current decline is 5.8 million barrels per day, including oil, which has since re-entered the market at the end of 2020 and in those first seven months of 2021.
The OPEC + group said on Tuesday, quoting Reuters, that it estimates demand will grow by 6 million barrels a day this year. But he sees risks of oversupply in 2022 due to “great uncertainty”, namely an imbalanced global recovery and the possibility that the delta variant of the coronavirus will continue to increase the number of infections.
For this reason, a source from the cartel told the British agency yesterday that the agreement to cut supplies could go beyond April 2022, so that the almost six million barrels that OPEC + members hold on the market will not reach the market by that date. Metro. However, OPEC + sources told Reuters that the UAE was not satisfied with the possibility that this agreement would be in force until the end of next year, having blocked the decision for today.
