logo-loader

Summer oil price rally loses steam as traders see more supply on the horizon

Published: 07:08 19 Jul 2021 EDT

Offshore oil rig

The great summer oil rally seemed to lose steam last week as the oil price declined but by the end of the week, OPEC and friends appeared to agree on a meeting to resolve differences with the UAE.

At the close of weekly trading, Brent crude was priced above US$73 with West Texas Intermediate (WTI) closer to US$72 a barrel.

The big news of the week was that the UAE had reached a compromise with Saudi Arabia on their baseline production figure.

Talks broke down at the earlier meeting this month when the UAE raised objections to their baseline and an extension of the agreement.

Compromise in coming days

It appears all will be resolved with a compromise in coming days with reports that the UAE will be increasing its baseline to 3.65 million barrels from the current 3.17 million barrels.

With 400,000 new barrels expected from OPEC+ in the coming months, The CEO of C-Markit, Dr. Yousef Alshammari expects additional oil on the market by September, not in August, due to the stall of the OPEC agreement. 

Dr. Alshammari says we need to remember that any increase in UAE production needs to be ratified with all members, not just agreed on with Saudi Arabia.

He says his only concern is that this agreed increase by one member country might "open the doors for others other members to expand their production and that will have detrimental impact on balancing the markets".

In the meantime, negotiations will be going on between member countries so OPEC+ can present a united front at its next virtual meeting if this happens.

The oil price had its biggest fall in a few months as investors see more oil returning to the market soon.

Depending on who you talk to, this might not be such a bad thing.

In its monthly oil market report, OPEC reiterated its forecast for a recovery on global oil demand for the second half of the year.

Looking ahead to 2022, the organisation sees demand strengthening further with growth being led by China and India.

Demand is expected to hit 99.86 million barrels a day, an increase of 3.4% with expectations to hit more than 100 million barrels a day by the end of 2022.

The report said the organisation was encouraged by the acceleration of the vaccine programmes around the world that will improve oil demand and "spur consumption of oil next year to comparable pre-pandemic levels".

Electricity demand up

The International Energy Agency released a report on the electricity market this week saying that demand for electricity was on the increase by 5% this year.

It makes sense that a recovery from the pandemic will increase energy demand, but the report says that renewables might only serve "half of the projected growth in global demand in 2021 and 2022".

Fossil fuel electricity generation is meeting about 45% of demand, expected to fall to 40% in 2022 with coal still higher in this space than gas.

While demand for electricity from renewables continues to rise, the agency says the industry can’t keep up with this demand.

The big focus now will be on the upcoming OPEC meeting. This will deliver a sense of confidence and stability to the market as producers and investors can plan better and look ahead to the second half of the year.

Ramp Metals Launches Drilling Program in Pursuit of High-Grade Nickel in...

Ramp Metals CEO Jordan Black joined Steve Darling from Proactive to introduce the company to the public domain and share exciting developments in the mining industry. With a background as a geotechnical engineer and experience in venture capital, including a notable role in taking GoldSpot...

23 minutes ago