Oil prices slip as OPEC+ reaches an agreement
After almost three weeks of negotiations and internal disputes between Saudi Arabia and the UAE, OPEC+ revealed a deal to bring more oil to the global markets. Starting August, OPEC countries and their allies will produce additional 400,000 barrels a day, with the figure set to be revised in December. The deal also gave the member’s biggest players higher baselines starting May 2022 as the supply management accord is set to persist until the end of 2022.
The UAE will receive a 332,000 b/d increase to its baseline production level. 500,000 b/d will be granted to Saudi Arabia and Russia, and 150,000 b/d to Kuwait and Iraq.
The achieved comprise should provide more clarity to the supply side of the equation and continue supporting prices in the medium term. However, the unity of the alliance could be tested again, especially if some members felt the deal is unfair.
Oil importers have been hoping for a more generous deal as demand is expected to continue outpacing supply and hence will keep the market in deficit for the upcoming few months. The $100 price tag for Brent crude may be far from reach after the deal, but the upward trajectory is likely to resume during this summer and possibly trade in a new range of $75 - $85 as we approach year end.
Some traders are unwinding their speculative bullish positions after the reached deal, and that could explain the weakness in prices today. But expect the selloff to be short-lived unless the demand side of the equation surprises us.
The major risk to the bullish narrative is a renewed coronavirus outbreak forcing big economies and especially oil importing nations into new lockdowns. Traders will need to continue monitoring how the covid situation develops from here as it remains the biggest risk to the global economic recovery.