Wednesday 22 September 2021
 
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ANALYSIS

Opec+ close to a compromise deal: MUFG

DUBAI, July 15, 2021

The Opec+ agreement will be extended from its current March 2022 expiry to December 2022 and from April 2022, the UAE’s baseline will rise by 15% from 3.17 million barrels per day (b/d) to 3.65 million b/d, said a report, highlighting the progress made to resolve the Opec+ standoff.

Such an agreement – if formally ratified – would likely come alongside an incremental 0.4 million b/d monthly ramp-up in output from August to December 2021, reported Mitsubishi UFJ Financial Group (MUFG), a Japanese bank holding and financial services company, in its latest Oil Market Weekly.  

If the contours of such a deal transpire, then this articulates to markets that Opec+ still remains united around a singular coordinated message with credible (much-needed) tapering of its remaining 5.8m b/d production still subject to curbs in the coming months. “This development puts a lid on sustained oil price rises and is on net, neutral-to-bearish, in our view,” MUFG said in the report.

Oil price forecasts

“We continue to expect a tight global oil market in the near-term, which could push Brent crude sporadically north of $80/b this quarter,” the report said.

“However, today’s oil price strength is tomorrow’s oil price weakness. US shale is displaying the first signs of recovery and higher oil prices offer the space for tactical producer hedging, fuelling prospects of a shale output return in 2022, while ample spare capacity and a flat, long marginal supply curve restrain the narrative of a bull supercycle.

“With this, we believe oil prices are currently hovering close to peak cyclical levels in firm ‘overshoot’ territory. Our quarterly profile is for Brent to regress lower and end Q3 and Q4 2021 at $73/b and $64/b, respectively, and to average $58/b in 2022. Under the weight of higher Opec+ production, steadily rising shale, the eventual return of Iranian supply, juxtaposed with a more normalised demand profile, we gradually lean short oil further out along the curve.” – TradeArabia News Service




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