(Bloomberg) — OPEC+ has overcame an internal dispute and bailed out a deal to add more barrels to the market, with the group increasing production by 400,000 barrels per day every month from August until all of the discontinued production is revived. Brent oil fell to $73 a barrel as investors processed the news.
Here’s what some analysts had to say about the deal, which was driven by the United Arab Emirates seeking better terms, and its broader outlook:
The market is very tight and an increase in supply of 400,000 barrels per day will prove a pittance, Ed Morse, chief of commodities research at Citigroup Inc., said in a televised interview with Bloomberg. Demand is significantly higher despite the Covid-19 pandemic exploding in parts of the world, and oil prices are likely to rise much further by the time the summer is over, he said.
The deal proves that OPEC+ is not only very much intact, but is on track to manage a controlled and cautious run-down of austerity measures to avoid even the slightest risk of the market turning into oversupply, said Vandana Hari, founder of Vanda Insights in Singapore. Quota-busting is likely to remain a thorn in the alliance’s side, especially as members begin to experience restraint fatigue as markets demand more oil, she added.
Goldman Sachs Group Inc. said the deal would bolster his constructive view on oil, while warning that prices could fluctuate in the near term amid concerns over the delta variant, analysts including Damien Courvalin said in a note. The planned production increase was moderate and would keep the market in deficit.
The focus will now be on demand as immediate supply uncertainties have dissipated, said Will Sungchil Yun, senior commodities analyst at VI Investment Corp. in Seoul. The deal was made on the assumption that the pandemic will ease next year, but the rapidly spreading delta variant could continue to affect oil markets for some time to come, he added.
The deal is likely to lead to some weakness in the near term as investors scale their positions on the prospect of increased supply, said Daniel Hynes, a senior commodities strategist at Australia & New Zealand Banking Group. The market is still relatively tight and the sell-off should be short-lived, he added.
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