This post was originally published on this site
A decision by the Organization of the Petroleum Exporting Countries and their allies on Wednesday to stick to its plan to gradually increase production each month may lead to a surplus in global supplies as early next year, according to Capital Economics.
The decision may also help to pull Brent crude prices down by around 15% by the end of 2022, the economic research consulting firm said.
On Wednesday, the oil collective known as OPEC+, including Russia, said it would keep the agreement it made in July, to raise overall production by 400,000 barrels a day each month from August and eventually erase the output curbs put in place last year to offset weaker demand driven by economic restrictions tied to the pandemic.
The group had faced a “number of conflicting pressures” ahead of the meeting, including pressure from the Biden administration, which called for a faster return of OPEC+ output than the group currently planned in an effort to lower prices, said Caroline Bain, chief economist at Capital Economics. There were also concerns about a “drop-off” in oil demand, given the rapid spread of the Delta variant in Asia, she said in commentary following the OPEC+ meeting.
Oil prices were volatile in the last month, but Brent crude
BRNX21,
BRN00,
was “comfortably” over $70 a barrel going into Wednesday’s meeting, Bain said, “exactly where it was at the time of the last OPEC+ meeting.”
In Wednesday dealings, global benchmark November Brent crude was down 29 cents, or 0.4%, at $71.34 a barrel on ICE Futures Europe. U.S. benchmark West Texas Intermediate crude for October delivery
CLV21,
CL.1,
traded at $68.24 a barrel, down 26 cents, or 0.4%, on the New York Mercantile Exchange.
With the group’s policy unchanged, Bain said Capital Economics expects the gradual return of OPEC+ oil supply in the coming year to put “downward pressure on prices.” The market will likely remain in a deficit in the fourth quarter of this year, then swing into a supply surplus early next year, she said.
In a report Tuesday, the OPEC+ Joint Technical committee forecast a 900,000 barrel-per-day global oil-supply deficit this year amid a recovery in oil demand, according to Reuters, which cited OPEC+ sources. Reuters said the report initially forecast a surplus of 2.5 million barrels a day in 2022, but that it was later revised to a surplus of 1.6 million barrels a day due to stronger demand.
Given expectations for a supply surplus next year, Capital Economics forecasts a fall in Brent crude prices to $60 a barrel by the end of 2022, down from current prices of around $71.
OPEC+ scheduled its next monthly meeting for Oct. 4.
