World Oil Markets on Edge

World Oil Markets on Edge
World oil markets are on edge with OPEC+ negotiations to boost supply now in deadlock.

World oil markets are on edge with OPEC+ negotiations to boost supply now in deadlock.

That’s what the International Energy Agency (IEA) stated in its latest oil market report, adding that the possibility of a market share battle, even if remote, is hanging over markets, as is the potential for high fuel prices to stoke inflation and damage a fragile economic recovery. The IEA noted that uncertainty over the potential global impact of the Covid-19 Delta variant in the coming months is also tempering sentiment.

“Oil markets are likely to remain volatile until there is clarity on OPEC+ production policy,” the IEA stated in its July oil market report. “And volatility does not help ensure orderly and secure energy transitions – nor is it in the interest of either producers or consumers,” the IEA added in the report.

In the case that OPEC+ production quotas remain at July levels, oil markets will tighten significantly as demand rebounds from last year’s Covid-induced plunge, the IEA predicted. The overhang in global oil stocks that built up last year has already been worked off, with OECD industry stocks now well below historical averages, the organization pointed out.

According to the IEA’s latest publication, global oil demand surged by an estimated 3.2 million barrels per day (MMbpd) to 96.8 MMbpd in June, following two consecutive months of decline. Robust global economic growth, rising vaccination rates, and easing social distancing measures will combine to underpin stronger global oil demand for the remainder of the year, with global oil demand expected to increase by 5.4 MMbpd in 2021 and 3.0 MMbpd in 2022, the IEA forecasted. The organization did, however, highlight that escalating Covid cases in a number of countries remains a key downside risk to the forecast.

World oil supply rose by 1.1 MMbpd in June to 95.6 MMbpd as OPEC+ eased output cuts and producers outside the alliance ramped up after maintenance, the report revealed. The call on OPEC+ crude oil is set to reach 42.8 MMbpd in 3Q21 and 44.1 MMbpd in 4Q21, compared with June production of 40.9 MMbpd, according to the report, which outlined that non-OPEC countries not part of the pact will boost output by 770,000 barrels per day in 2021 and by 1.6 MMbpd in 2022.

At the time of writing, the price of Brent crude oil stood at $76.14 per barrel. OPEC+ has not yet set a date for its next meeting on its website.  

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