Market Close: June 30 Up
Jul 1st, 2021 by loren
Brent Crude Futures the international benchmark, were trading just over $75 a barrel Wednesday. WTI Crude Futures for August were just under $74 a barrel, around their highest level since the fall of 2018. Oil prices rose Wednesday on a report of lower U.S. inventories. This is their most important meeting in over year. They were staring down a grave situation with negative pricing last year, and they came together,” Again Capital partner John Kilduff said. “The plan has been to return 500,000 barrels a month, and I think they’ll stick to that. It’s working for them because prices keep going higher and higher.”
OPEC is expected to consider extending its current production accord beyond the existing April 2022 end date, and analysts widely expect it to return 500,000 barrels to the market in August. “To me, the interesting story is if they roll over current cuts, how high do [prices] go. It’s being discussed in terms of the potential options,” RBC head of global commodities Strategy Helima Croft said. She said the market has already priced in 500,000 barrels a day of additional production, and if it was higher than expected, prices would fall slightly. Croft said OPEC+ has become more flexible since Covid, and it can quickly adjust when it sees how big factors will affect the market.
For instance, the U.S. and Iran have been discussing a new nuclear accord. If that happens, Iran could return at least 1 million barrels a day to the market. The timing of that is unclear, and that oil would have to be absorbed alongside OPEC’s current production later this year if a deal is struck. “OPEC used to move like a battle ship. We had these biannual meetings. It was so hard to convene OPEC” during Covid, Croft said. She noted that OPEC operates now more like the U.S. Federal Reserve, with regular policy-setting meetings.
“It means they really have directional control of the market,” she said. The Organization of the Petroleum Exporting Countries, led by Saudi Arabia initiated monthly meetings this year, with the oil market in a state of flux as demand returns. OPEC Secretary General Mohammed Barkindo said Tuesday that OPEC expects demand to rise by 6 million barrels per day this year, with 5 million of that coming back in the second half of the year.
“Now with the monthly meeting structure, they’re more like a speedboat as opposed to a battleship. If the Delta variant is really demand-destructive in key geographies, they can reverse course,” Croft said. “To me, this monthly meeting structure has given them flexibility to adjust quickly. And for market participants, everybody has to tune in. They are the story. … This is how things have changed from 2015 when they were written off as irrelevant.”
Big changes in the market also changed OPEC, which had to cut production sharply last year as demand cratered and oil prices collapsed. Of less concern has been pressure from U.S. shale producers, who had previously moved aggressively to add new wells every time prices rose.
In the U.S., the politics of oil has also changed dramatically. The Biden administration is more focused on climate and renewables. The Trump administration had been set on growing a stronger, less-regulated oil sector. During that era, the U.S. grew to be the world’s largest oil producer.
“They [OPEC members] have the wind at their back,” Croft said. She said they see the oil majors with ESG mandates, and the new focus of courts and the U.S. government.