Goldman Sachs sees 'upside' to oil price forecasts from OPEC+ supply deal

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Reuters 18 July, 2021 - 10:58pm 11 views

Will OPEC deal increase oil prices?

OPEC Plus Agrees on Oil Production Increase, Easing Pressure on Supplies and Prices. ... Under the deal announced on Sunday, OPEC Plus, a group of 23 nations led by Saudi Arabia and including Russia, will increase output each month by 400,000 barrels a day, beginning in August. The New York TimesOPEC Plus Agrees on Oil Production Increase, Easing Pressure on Supplies and Prices

July 18 (Reuters) - U.S. investment bank Goldman Sachs said the OPEC+ deal to boost oil supply supports its view on oil prices and expects modest "upside" to its summer forecast for Brent to reach $80 a barrel.

OPEC+, comprising the Organization of the Petroleum Exporting Countries, Russia and other producers, agreed on Sunday to boost oil supply from August to cool prices which have climbed to 2-1/2 year highs. read more

"The agreement had two distinct points of focus: a moderate increase in production which will keep the market in deficit in the coming months, as well as guidance for higher capacity which will be needed in coming years given growing under-investment," Goldman Sachs said in a note.

Goldman said the deal is in line with its view that "OPEC should focus on maintaining a tight physical market all the while guiding for higher future capacity and disincentivizing competing investments."

The OPEC+ deal represents $2 per barrel "upside" to its $80 per barrel summer Brent price forecast and a $5 upside to its $75 per barrel forecast for next year, Goldman said.

However, Goldman expects oil prices to gyrate in the coming weeks due to the risks from the Delta variant and the slower velocity of supply developments relative to recent mobility gains.

With most of its expected summer demand gains already achieved and with growing headwinds from the Delta COVID-19 variant, Goldman said the catalyst for the next leg higher in prices is shifting from the demand to the supply side, with upside risks to price forecasts in the coming months.

Oil prices fell more than $1 a barrel on Monday, after the OPEC+ group of producers overcame internal divisions and agreed to boost output, sparking concerns over a supply glut amid a surge in COVID-19 cases.

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OPEC and allies target full end to oil production cuts by September 2022, increase supply limits as prices climb

CNBC 19 July, 2021 - 08:11am

DUBAI, United Arab Emirates — The Organization of Petroleum Exporting Countries (OPEC) and its non-OPEC allies reached a deal Sunday to phase out 5.8 million barrels per day of oil production cuts by September 2022 as prices of the commodity hit their highest levels in more than two years.

Coordinated increases in oil supply from the group, known as OPEC+, will begin in August, OPEC announced in a statement.

Overall production will increase by 400,000 barrels per day on a monthly basis from that point onward. The International Energy Agency estimates a 1.5 million barrel per day shortfall for the second half of this year, indicating a tight market despite the gradual OPEC supply boost.

OPEC+ agreed in the spring of 2020 to cumulatively cut a historic nearly 10 million barrels per day of crude production as it faced a pandemic-induced crash in oil prices. The alliance gradually whittled down the cuts to about 5.8 million barrels per day.

The agreement followed a temporary but unprecedented gridlock that began in early July and saw the United Arab Emirates reject a coordinated oil production plan for the group spearheaded by its kingpin, Saudi Arabia. While the 13-member organization has seen disagreements before, this was the first public rift between the UAE and Saudi Arabia, which are close allies.

Abu Dhabi had demanded that its own "baseline" for crude production — the maximum volume it's recognized by OPEC as being able to produce — be raised because this figure then determines the size of production cuts and quotas it must follow as per the group's output agreements. Members cut the same percentage from their baseline, so having a higher baseline would allow the UAE a greater production quota.

Sunday's agreement revealed baseline increases for four of OPEC's member states and one non-OPEC state beginning in May of 2022: the UAE, Saudi Arabia, Iraq, Kuwait, and Russia, the last of which is not an OPEC member but a leader of OPEC+. The UAE's baseline for oil production will be raised from 3.16 million barrels per day to 3.5 million barrels per day, though short of the 3.8 million it reportedly initially requested. Saudi Arabia's baseline will be increased from 11 million to 11.5 million barrels per day.

Abu Dhabi's support for the deal was evident in the opening statement from Emirati Energy Minister Suhail Al Mazroui.

"We appreciate the constructive dialogue we had with his highness and OPEC," Al Mazroui told journalists on a press call Sunday, referring to Saudi Energy Minister Prince Abdulaziz bin Salman. "I confirm that the UAE is committed to this group and will always work with it and within this group to do our best to achieve the market balance and help everyone. The UAE will remain a committed member in the OPEC alliance."

Russian Energy Minister Alexander Novak said in a written statement to the Saudi minister that "We are ready to support anything said by you."

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OPEC+ is boosting oil production, ending dispute that shook energy markets

CNN 19 July, 2021 - 08:11am

Updated 1:42 PM ET, Sun July 18, 2021

Oil producers do themselves a favour

Reuters 19 July, 2021 - 04:39am

LONDON, July 19 (Reuters Breakingviews) - Saudi Arabia has wised up. The de facto leader of the 13-strong Organization of the Petroleum Exporting Countries, plus 10 allies including Russia who collectively constitute “OPEC+”, agreed on Sunday to end output cuts in late 2022 instead of next April. The quid pro quo for a deal that will help them to navigate the uncertain course of the pandemic: Riyadh reluctantly allowed an increase in Abu Dhabi’s production.

This makes Saudi look a bit weak. But the kingdom and Russia will also be allowed to pump more, while Abu Dhabi didn’t get as much of an increase in its allocation as it wanted. The alternative to compromise was seeing the United Arab Emirates flounce out, the OPEC+ deal implode, and over 5 million barrels of daily production flood the market. That would have triggered a far bigger decline in oil prices than Monday’s 2.5% drop to below $72 a barrel, which may also reflect renewed fears over virus hits to demand. It was smarter for producers to slowly add 2 million barrels a day by the end of 2021, and enjoy the fact that green considerations are reducing non-OPEC producers’ scope to grab market share read more . (By George Hay)

On Twitter http://twitter.com/breakingviews

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