The standoff between the UAE and the rest of OPEC+ continues, with Monday’s meeting cancelled. In theory, this means that OPEC+ output will remain unchanged in August, which would be bullish for prices in the short-term, according to economists at ING. However, a breakdown in talks puts the broader deal at risk – and so the potential for supply to increase in the longer-run.
OPEC+ fails to come to a deal
“With neither side willing to compromise, Monday’s scheduled meeting was cancelled, and for now its not known when the next meeting will take place. As things stand, this means that in theory, OPEC+ output levels will remain unchanged in August. However, in practice, it is hard to believe that some members will stick to the deal amid the fallout.”
“The market needs to see supply increasing over 2H21. Even if we do see some sort of resolution, and the group eventually agrees on a 400Mbbls/d supply increase per month from August through until the end of this year, the market will still be drawing down inventories, and so prices should still be relatively well supported.”
“The fallout within OPEC+ means increased uncertainty in the months ahead if a quick resolution is not found, which suggests increased volatility in prices.”
“We now expect ICE Brent to average $75/bbl over 3Q21, but clearly there is the risk of spikes higher, given the uncertainty at the moment. We have retained our view that Brent will average $70/bbl over 4Q21. This is assuming that OPEC+ will eventually come to a deal.”
“A scenario where we could see significantly weaker prices is if the group fails to find a solution to the standoff. The longer it persists, the more likely that we start to see compliance slip, and the deal slowly falls apart. This would be a scenario that OPEC+ would want to avoid, given that there is still a large amount of uncertainty over the demand outlook.”
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