Preserving OPEC+ cohesion, balancing oil markets are imperative: Platts

The rising possibility of no deal to extend the OPEC+ agreement beyond April 2022, and August quotas thus remaining flat, highlights a clearly bullish shortterm oil price scenario amid the summer demand surge.

Even if quotas rise by 400,000 b/d in each month from Augustdecember, as preliminarily agreed on July 1, waning compliance would still be required to meet 3.3 million b/d of growth in the Call on OPEC+ in July-august alone.

The overall 2 million b/d quota increase outlined through end-year aligns with our outlook for the extra supply the market will need from OPEC+, but the deliberate monthly timetable signals extra tightness in August with or without an imminent resolution to the stalemate. Saudi Arabia and the UAE maintain a mutually beneficial interest in preserving OPEC+ cohesion and balancing oil markets, which combined with a geopolitical alliance in the Middle East makes a near-term compromise a plausible outcome. In any case, markets need greater oil supply now, with global demand set to grow by 4.2 million b/d by August versus June.

The lack of a deal in the coming days or weeks could cause even more tightness than expected in August, given the possibility of quotas remaining flat, but would likely trigger worsening compliance from several OPEC+ producers amid higher prices.

On the other hand, a nearterm compromise would provide the market with greater supply in August and September, but likely secure more sustained OPEC+ compliance and maintain the framework of the current agreement.

As such, short of a complete collapse in OPEC+ both outcomes result in roughly the same supply and thus remain bullish the front but will leave balances softer and less supportive as we move deeper into the year.

We forecast balances to loosen by early 2022, but this assumption

hinges on significant growth from Iran and the US, and a lack of

major disruptions in geopolitical hot spots including Libya, Nigeria and Iraq.

Delegates remain particularly cautious on an Iran framework deal, which we expect in 3Q 2021, with crude supply growth of 1.0 million b/d from June to year-end. Given the many market uncertainties, demand for OPEC+ spare capacity could persist for longer than currently assumed.