Oil prices hovering around their highest price since October 2018
Attention will turn to the OPEC+ ministerial meeting on Thursday, as officials will discuss crude output levels and supply for the coming months.
Giles Coghlan, Chief Currency Analyst, HYCM said: “Naturally, buyers will be trying gauge what’s in store next, after the bullish run we have seen in the USOIL markets recently.”
At present, both Brent crude oil and West Texas Intermediate are hovering around their highest price since October 2018, amid rumours that demand could increase substantially during H2.
Reuters reported that analysts at Goldman Sachs believe demand will rise by an additional 2.2m barrels per day before the close of 2021. This would mean a 5m barrels per day shortfall.
“Given that the OPEC+ have kept output levels on a tight leash in recent months, with global economies now beginning to consume more oil, expectations are mounting that the organisation could loosen its hold and increase supply,” said Coghlan.
“However, there are two main factors that could undermine this narrative,” Coghlan added. “The first being the recent spike in new COVID-19 cases around the globe, driven largely by the more infectious Delta variant. Particularly as Australia and New Zealand have not yet vaccinated so much of their population, the rise in cases means that a recovery in demand might be a slippery prospect, with these countries remaining vulnerable to further lockdown restrictions.”
“Secondly, ongoing talks between Iran and other world powers regarding the revival of Tehran’s Nuclear deal could prove another setback, should these negotiations take longer than expected. Although many analysts expect this output to be absorbed, it could potentially result in some short-term downside.”
It will take careful precision from the OPEC+ to make sure that oil prices remain supported, while ensuring added production levels.
“Some reports suggest that the cartel is mulling over bringing additional supply online in response to the fast rebound in demand, but how much more can they bring to the table?,” said Coghlan.
“Current estimates suggest that this could look like an extra 500,000 to 1,000,000 barrels per day. Ultimately, the bottom line is that as the global vaccine rollout continues, the general outlook for USOIL is optimistic, and deeper pullbacks that are backed around $68 would be a clear buy.”