Tuesday 21 September 2021

Opec+ stalemate unlikely to last long: MUFG

DUBAI, July 8, 2021

While the July Opec+ meeting never concluded as the UAE, Saudi Arabia and Russia failed to overcome their differences, Opec+ has successfully stood the test of time and differences in the current standoff are surmountable, a report said.

The UAE asked for a higher baseline from April 2022 (when the current deal expires), whilst both Saudi Arabia and Russia asked for an extended commitment to December 2022, said the Mitsubishi UFJ Financial Group (MUFG), a Japanese bank holding and financial services company, in its latest Oil Market Weekly.

“Whilst this lack of agreement has introduced uncertainty into the Opec+ production trajectory, and ultimately global demand-supply balances, our base case that we catalogued on July 5 remains for a gradual 0.4 million barrels per day (b/d) increase in production on a monthly basis for the remainder of 2021 with talks of an extension past April 2022 postponed to a later date,” MUFG said in the report.

The failure of Opec+ to reach an agreement on July 5 to increase supply initially pushed spot prices for Brent crude into the high $70s/b – levels not seen since 2018. Thereafter, oil prices have retraced its gains due to a strengthening US dollar, the continuing spread of Covid-19’s Delta variant as well as apprehensions of oversupply in 2022.

“We are tactically bullish for the week ahead given the lack of an Opec+ agreement tilts the market into further deficit, and look for further evidence of demand strength, falling inventories, rising premiums and the forward curve in steeper backwardation,” the report said.

Oil price forecasts

“Notwithstanding the Opec+ stalemate potentially driving crude higher near-term (we do not rule out Brent sporadically flirting north of $80/b), we believe oil prices are currently hovering close to peak cyclical levels and remain in firm “overshoot” territory,” MUFG said.

“Our quarterly profile is for Brent to regress lower and end Q3 and Q4 2021 at $73/b and $64/b, respectively. However, should the current Opec+ stalemate prolong for more than a few weeks, then our modelling estimates signal that this would introduce a ~$5-6/b upside to our end Q3 forecasts under a delayed ramp-up scenario, and separately a $9-10/b downside relative to our end Q3 forecast in an all-out price war and higher quota scenario.” – TradeArabia News Service


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