Market Report 23-07-21
This week, there was a major announcement in the commodity markets with OPEC and its allies (known as OPEC+) agreeing to increase oil production. The cartel, which includes Kuwait, Russia, Iraq, Saudi Arabia, and the United Arab Emirates, will raise oil production by 400,000 barrels per day from August and by 2,000,000 barrels per day by the end of the year.
The announcement, which was made on 18/07, saw Brent Crude (the international oil benchmark) drop to a low price of $68.50 at 12pm Eastern Daylight Time on 19/07. It was trading at roughly $73 prior to the announcement. The production hike has been seen as conservative at best, with a widely held view that the members do not want to oversupply to the market.
The conservative hike in production shall insure OPEC’s members if COVID-19 and its variants cause a reversal of the economic reopening happening around the world. This would certainly send demand for oil plummeting, as had been seen last year on April 20th when the price of U.S. oil benchmark Western Texas Intermediate fell from roughly $17.85 to a low of -$37.63 per barrel.
However, oil prices overall remain robust and on track with economic recoveries being observed around the world. Analysing the price of Brent Crude since 06/01/21:
Source: William John Analytics, Investing.com
Clear strong price growth since the start of the year is likely to convince OPEC of their convictions. According to the Financial Times, another 5.8 million barrels per day remain off the market, however if economic reopening’s and recoveries continue to develop as they have been, it is likely that this particular level of production shall return to the world economy by the end of 2022.
Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.
