OPEC and non-OPEC ministers ended their meeting without a resolution after a key member left the OPEC+ coalition marred in uncertainty. The group earlier postponed its meeting on oil output policy till Monday (5th July). The OPEC+ alliance had agreed in principle to boost supply from August 2021 from its current levels to meet expected rising demand in H2-2021. The current agreement OPEC+ agreement is scheduled to expire in April 2022.
Following reports of a potential supply glut in the market in 2022, some members had proposed extending the duration of cuts until the end of 2022 instead of Apr-2022. However, the UAE opposed these plans, putting the OPEC+ output agreement at risk. Oil prices were unperturbed by the news, rising slightly on Thursday before losing momentum on Friday.
The Brent crude futures traded at $76.03 a barrel, up to 0.2% for the session, while U.S West Texas Intermediate (WTI) futures settled marginally to close lower at $75.16 a barrel. We maintain our positive outlook, which is predicated on demand-led recovery in the second half of 2021.
However, potential downside risks remain. The highly infectious delta variant of Covid-19, which is already sending some countries back into partial lockdown and triggering a worrying rise in cases in other nations, threatens demand recovery.
The standoff between the UAE and the rest of the cartel could ultimately mean tighter restrictions on compliant members, leading to a squeeze in an already tight market, further boosting prices. On the other hand, a disorderly OPEC+ could lead to cheating on the output quotas, leading to excess supply from OPEC+ and a price weakness.