Delay in OPEC Agreement Keeps Oil Prices Under Uncertainty


July 13, 2021, | AtoZ MarketsThe lack of agreement among OPEC members has been taking a toll on oil. Currently the price continues to face uncertainty from investors.

The International Energy Agency (IAE) warned that world oil markets are likely to remain volatile following a breakdown in talks between OPEC members and their non-OPEC allies, creating a no-win situation.

In its latest monthly oil market report, the IEA said energy market participants were closely monitoring the prospect of a deepening supply deficit if a deal was not reached by the Organization of the Petroleum Exporting Countries and its oil-producing allies, a group known as OPEC+.

“Oil markets are likely to remain volatile until there is clarity on OPEC+ production policy. And volatility does not help ensure orderly and secure energy transitions — nor is it in the interest of either producers or consumers,” the IEA said.

Factors That Have Been Affecting the Price of Oil

Oil prices, after reaching annual highs, have entered a phase of doubt marked by the lack of agreement among producing countries to increase the supply of crude oil and by the expansion of the Delta variant of the Coronavirus.

Two  factors explain the volatility of the last few days:

  • The increase in the number of Covid-19 contagions
  •  The failure of the last OPEC+ meeting.

After 3 frustrated attempts, OPEC+ members decided on last Monday to suspend their contacts until further notice, which increased uncertainty in the markets.

How Are the Oil Figures?

Last year due to the pandemic, OPEC + decided to cut oil production of almost 10 million barrels per day (bpd). Meanwhile, this corresponded to 10% of world production, as the pandemic hit global demand hard.  However, restrictions have been significantly relaxed from this figure, and currently stand at around 5.8 million bpd.

What Did the IAE Say?

IEA has said it expects current global oil demand to increase by 5.4 million barrels per day this year and another 3 million barrels in 2022.

Meanwhile, the “remote” possibility of a market share battle between producers could affect energy markets, the IEA said. Also, the entity said that higher oil prices and higher inflation could damage the current fragile economic recovery.

In addition, uncertainty over the potential global impact of the highly transmissible Covid-19 delta variant could also dampen market confidence in the coming months, the group said.

Oil prices rallied more than 45% in the first half of the year, supported by the rollout of Covid vaccines, a gradual easing of lockdown measures and record production cuts from OPEC+.

“While prices at these levels could increase the pace of electrification of the transport sector and help accelerate energy transitions, they could also put a drag on the economic recovery, particularly in emerging and developing countries,” the IEA said.

Brent Oil Daily Chart

Oil has regained its bullish tone during the trading day, and if we review the chart we can see that the price must stay above the $75 per barrel area to maintain its uptrend.

On the other hand, the $77.08 zone appears as the next important resistance for the price, if it wants to head towards the $80 zone, where some analysts expect it to reach.

The price is currently very close to its weekly opening level of $76.72, and should not fall below $74 if it wants to maintain its bullish tone.

 

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