Oil prices to remain stable above $70 after Opec+ deal
Agreement is a step in the right direction to ensure price stability in the wake of economic recovery after successful vaccination drives rolled out across the globe
Oil prices are likely to stay stable above $70 per barrel following a deal reached by major crude producers on Sunday, experts say.
Analysts and market insiders termed the output deal by the Organisation of the Petroleum Exporting Countries (Opec), Russia and other producers a step in the right direction to ensure price stability in the wake of economic recovery after successful vaccination drives rolled out across the globe.
“There is a clear toppish formation in crude oil price near $75 per barrel. The $70 mark will likely be tested in the continuation of the actual downside correction, as rising Covid cases also weigh on sentiment even though the recovery in travelling hasn’t taken a hit for the moment,” said Ipek Ozkardeskaya, a senior analyst at Swissquote.
An Opec+ meeting agreed to raise output by 400,000 bpd each month from August to help fuel a global economic recovery as the pandemic eases. Last year, the group cut production by a record 10 million bpd amid a pandemic-induced slump in demand and collapsing prices.
The group has gradually reinstated some supply to leave it with a reduction of about 5.8 million bpd.
Ehsan Khoman, head of emerging markets research at MUFG Bank, believes that the contours of such a deal articulates to markets that Opec+ still remains coordinated around a singular message, with tapering of its remaining 5.8 million bpd production still to be expected in the months ahead.
“Reports suggest that a deal will see the Opec+ agreement extended from its current March 2022 expiry to December 2022 and the UAE’s baseline rise by 15 per cent from 3.17 million bpd to 3.5 million bpd from April 2022,” Khoman said.
Good for consumers
Robin Mills, chief executive of Dubai-based consulting firm Qamar Energy, said the deal is good for consumers in the short term, but price pressures will remain as demand builds in coming months.
International benchmark Brent crude is up 43 per cent year-to-date and up more than 60 per cent from this time last year, with many forecasters expecting to see oil trading at $80 a barrel in the second half of 2021. Brent closed at $73.59 a barrel at the end of the trading day on Friday while US crude oil for August delivery rose 16¢ to $71.81 a barrel.
Giovanni Staunovo, a commodity analyst at Swiss bank UBS, said the market will be tight this summer.
Another energy analyst, Anas Alhajji, said the Opec+ base increases are not as bearish as they may appear. “The objective is to maintain order and the integrity of the agreement. Reserving ‘production space’ is an important tool to control production ceiling. Actual production may not increase,” he tweeted after the deal.
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