Oil prices dropped by 5 percent early on Monday, with WTI Crude slipping to $67 per barrel, after OPEC+ decided on Sunday it would start returning 400,000 barrels per day (bpd) to the market every month beginning in August until it unwinds all the 5.8 million bpd cuts.
The prospect of monthly increments in oil supply from the OPEC+ alliance comes just as COVID infections are rising in many countries because of the faster-spreading Delta variant. Concerns over potential hiccups in global oil demand recovery amid rising supply from OPEC and its Russia-led non-OPEC partners dragged oil prices down on Monday.
As of 8:22 a.m. EDT, WTI Crude prices were trading down by 3.9 percent at $69.01 and Brent Crude was down 3.52 percent at $71.00.
The fact that OPEC+ reached a deal on production and baseline production levels removed a major uncertainty from the market, some part of which was fearing a breakup in the alliance.
The deal is constructive for the market, Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNBC, noting that “This agreement should give market participants comfort that the group is not headed for a messy breakup and will not be opening up the production floodgates anytime soon.”
Despite the fact that OPEC+ will be adding more and more supply in each of the coming months, many analysts continue to believe that the market will remain relatively tight because demand continues to grow.
ING, for example, kept its oil price forecast of $75 per barrel for Brent Crude over the third quarter this year because the supply additions from OPEC+ are in line with the bank’s earlier projections.
“Healthy demand growth combined with moderate supply increases from OPEC+ will likely remain supportive for the oil market in short term at least,” ING strategists Warren Patterson and Wenyu Yao said early on Monday.
Goldman Sachs continues to be bullish on oil and even sees the OPEC+ deal as having a $2 per barrel upside to its $80 a barrel Brent outlook for this summer. SOURCE: Oilprice.com