An unexpected failure at the Opec Plus much anticipated meeting was the latest excuse WTI crude oil needed to push prices to near 7-year high. Brent crude oil at $77/bbl was seen trading at 30-month high and more observers have called for an extended bull rally, as the two key Opec participants, Saudi Arabia and the UAE have publicly traded barbs, after the failure of striking an output increase deal earlier this week.
As global oil demand resurges, there was growing anticipation in the market that the Opec Plus group would eventually agree to a production increase roadmap from August to enter 2022. But the leader of the group, Saudi Arabia had different ideas, as it insisted on a lower baseline for monthly production increase for each group member to carry deeper into 2022.
The UAE insists on oil production to be relaxed by 0.7 million bpd in order to agree for the rollout to last the entire 2022. But all other members have tentatively agreed on Saudi Arabia’s plan of keeping the base low at 0.4 million bpd. The idea was first floated to push the expiry of the output curtailment deal further to last through entire 2022.
Most observers had predicted smooth sailing leading to the Opec meeting. But the fact that the meeting was called off without even convening, has sent ripples in the market. The likes of Morgan Stanley have raised the projections following the development, and now expect oil to average $75-80/bbl for the second half of 2021.
The more bullish participants have ramped up calls for Brent beating the $100/bbl barrier, before the next Opec meeting. But it must be kept in mind that oil projections have often fallen flat from even the most sophisticated and well-equipped research houses, year after year. The disagreement between Saudi Arabia and UAE has equally good chances to turn into an amicable agreement, sooner than many think. And that alone could send oil back, in a scenario, where US rigs are back in the business ramping up production. These are uncertain times for oil, and that promises one thing – high volatility.