In its July 1 meeting, the OPEC+ Joint Ministerial Monitoring Committee, including Russia and Saudi Arabia, has recommended a gradual increase of 400,000 b/d each month from August to December. Thus, in December, there will be about 2 million b/d of oil added to supply by the OPEC+ group. In addition, the organization’s production cuts agreement is to be extended to December 2022.
In response to the destruction of oil demand caused by the COVID-19 crisis, OPEC+ agreed last year to reduce production by nearly 10 million b/d starting in May 2020, with plans to phase out the curbs by end April 2022. The current production cut in place is about 5.8 million b/d.
The OPEC+ technical panel said Tuesday that it expects oil demand to increase by 6 million b/d in 2021, but said there is a risk of oversupply in 2022, due to “significant uncertainties,” including the imbalance of global recovery and the increase in cases of the Delta variant of the coronavirus.
“The market is clearly bullish today, as traders expect a supply increase decision from OPEC+, but in a cautious manner that does not prematurely recall too much supply too soon,” said Louise Dickson, oil markets analyst, Rystad Energy.
“Maintaining price stability at high levels, while on the same time increasing its output, could be in the best interest of OPEC+ today. The alliance has already helped stoke Brent oil prices beyond $75/bbl and the producers group is well aware of the impact its policies have on prices,” she said.
"The supply increase would be less than market participants expected, and demand is still expected to rise into August," said Giovanni Staunovo, commodity analyst, UBS. Consensus had been for an addition of 500,000 b/d a month or slightly more, he said.
Crude oil prices remain firmly in the green but have backed off earlier highs. Brent crude was trading at $76.4/bbl, up more than 2%.
