Brent crude passes $77 as OPEC fails to reach new oil output deal
(Bloomberg) - Brent oil prices rose above $77 a barrel for the first time since 2018 after OPEC+ failed to reach an agreement on bringing back curtailed output, leaving the market with tighter supplies than expected.
Futures rose as much as 1.2% in London. The group’s oil ministers were unable to reach a compromise, keeping current production limits in place for August and depriving the market from the extra barrels it needs as demand recovers from the pandemic.
“As things stand now, this is quite a bullish scenario for oil prices,” TD Securities analyst Daniel Ghali said by phone. “We should see the energy market tighten up at a faster pace than we anticipated in recent months.”
Talks on Monday followed a delay from last week as the Saudis stood firm about raising output starting in August and extending the OPEC+ agreement to the end of 2022, while the United Arab Emirates sought better terms for itself. The failure by the group to increase supply will further squeeze an already tight market, raising concerns over inflation.
Most OPEC+ members backed a proposal to increase output by 400,000 barrels a day each month from August, and push back the expiry of the broader supply deal into the end of next year. To agree to an extension, the UAE sought to change the baseline that’s used to calculate its quota, a move that could allow it to boost daily production by an extra 700,000 barrels.
Crude rose for a third month in June as widespread Covid-19 vaccinations have helped revive demand while OPEC+ has curbed supply. But prices at the highest in more than two years have raised worries over its impact on the global economy, and the White House is already voicing concern about rising gasoline prices.
While demand signals are strong in Europe and the U.S., the virus is spreading again in parts of Asia, resulting in increased restrictions on movement.
Morgan Stanley estimates global daily oil demand is set to increase by 3 million barrels from the May-June period to December. With little supply growth elsewhere, even the proposed increase from OPEC+ will likely keep the market in deficit. That will support Brent prices within the bank’s forecast range of $75 to $80 a barrel in the second half of this year.
Other market news:
- Vitol Group, the world’s largest independent oil trader, expects the crude rally to continue on the assumption any OPEC+ output hikes will fail to keep pace with growth in demand.
- Iraq said it was keen to improve conditions for international oil companies, after BP Plc and Russia’s Lukoil PJSC moved to sell down their assets in the crisis-wracked country.
