Oil futures: Crude rises 1.8% on expectations that OPEC+ will increase supply slowly

1 Jul 2021

Quantum Commodity Intelligence – Crude oil futures moved sharply higher in afternoon trading in Europe Thursday, amid reports that OPEC+ is moving towards consensus to increase supplies by relatively small monthly increments for the remainder of the year. 

Front-month September Brent futures were trading at $75.97/barrel (1700 GMT), compared to Wednesday’s settle of $74.62/b.

At the same time, August WTI was trading $75.34/b, up from Wednesday’s settle of $73.47/b.

Reports from delegates suggest there is a consensus between Russia and Saudi Arabia around an agreement to limit monthly hikes to a maximum of 500,000 bpd for the rest of the year.

"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," Louise Dickson, senior analyst with Rystad Energy

"Prices are also rising as initial leaks suggest that OPEC+ is considering a 2 million bpd output hike from August through December, with a monthly increase of below 500,000 bpd."

OPEC+ producers meet later Thursday after crude markets posted strong gains during June, with Brent up by over 7% on the month, while WTI was more than 9% higher.

"We expect production to be expanded by 500,000 barrels per day in August. This would be a compromise solution that both the OPEC Gulf States, which tend to express more caution, and their partners such as Kazakhstan and Russia, which tend to push for bigger production hikes, could find acceptable," said Commerzbank Thursday. 

The International Energy Agency has called on OPEC+ to increase supply, while consumer nations are also pushing for an increase of at least 1 million bpd as a counter to the higher prices.

However, the creep of the Delta variant of Covid has raised demand growth concern among producers.

“OPEC’s next move matters enormously. While in a good position, they will remain cautious, with a view not only for the path forward for H2 2021 but arguably a more choppy 2022 given the (potential) return of US shale and Iran,” said Ahmed Mehdi, energy consultant and Research Associate at the Oxford Institute for Energy Studies.

However, Iranian talks look to have stalled for now, Daniel Hynes, senior commodity strategist at ANZ noted; “Negotiations over Iran’s nuclear program are facing renewed delays.

“Diplomats have been working to renew the nuclear deal for months; however, talks have broken down as both Iran and the US refuse to budge from their positions.”