Opec+ deadlock could lead to tight oil market, IEA says

A no-deal among Opec+ producers to add more supply is expected to tighten the market significantly as global energy demand continues to increase, the International Energy Agency said in its latest monthly market report.

“The Opec+ stalemate means that until a compromise can be reached, production quotas will remain at July’s levels,” the agency said in its latest report. “In that case, oil markets will tighten significantly as demand rebounds from last year’s Covid-induced plunge.”

Opec+, which is led by Saudi Arabia and Russia, introduced production cuts of about 10 million barrels per day last year after Covid-19 hit global crude demand.

With air and ground transport coming to a halt as countries closed their borders, oil prices and demand fell to historic lows.

However, demand is picking up in Europe and the US as movement restrictions are eased and economies reopen.

Opec+ has been relaxing its output curbs in line with an expected demand increase. The group had earlier planned to bring 2 million bpd back to the markets at its July meeting.

However, the meeting has been postponed indefinitely to review the UAE’s concerns over an outdated baseline being used to calculate quotas, as well as its objections to extending the current agreement beyond April 2022 using the current yardstick.

Global oil demand also increased by about 3.2 million bpd to 96.8 million bpd in June after two consecutive months of decline, the agency said.

The IEA expects oil demand to rise by 5.4 million bpd in 2021 and by 3 million bpd in 2022. However, it issued a warning on significant downsides caused by the rising number of Covid-19 cases, attributed primarily to the more virulent Delta-plus strain.

“Robust global economic growth, rising vaccination rates and easing social distancing measures will combine to underpin stronger global oil demand for the remainder of the year,” the agency said.

Crude oil benchmarks, which retreated on Monday amid uncertainty over Opec+ action, gained as the market continued to tighten.

Brent, the main benchmark for oil, rose by 0.51 per cent to $75.54 a barrel at 2.44pm UAE time while West Texas Intermediate, which tracks US grades, was up 0.39 per cent at $74.39 per barrel.