How Will OPEC+ Handle Supply Shortages?

Markets are trading slightly higher this morning as traders await the OPEC+ meeting later this week. OPEC+ has already agreed to phase in 2.1 MMbpd of production over the next few months, but that may not be enough to keep up with recovering demand. OPEC forecasts suggest oil markets will experience a significant supply shortage, beginning in August, of roughly 1.5 MMbpd. The supply gap will widen to 2.2 MMbpd by Q4.

The shortage is a tough challenge for OPEC+. If they agree to fill the void now, they risk a US-Iran deal flooding the market with too much supply, causing prices to plummet. On the flip side, maintaining cuts could cause prices to rise even higher, threatening the global economy and risking political blowback from demand-heavy countries. The most likely outcome is that the group continues its gradual production growth, possibly leaving markets tight in Q4 but balancing out in 2022.

OPEC+ must also contend with an uncertain future. Spain and Portugal implemented new COVID-related restrictions for unvaccinated travelers to curb the spread of the new COVID variant. The UK has seen new cases rise at their fastest pace since January as the more transmissible variant spread. Oil markets are watching carefully – although vaccine programs have been quite successful in Western countries, rapid contagions among unvaccinated populations remain a very real threat to public health and, in turn, oil demand.

Market Condition Report - Disclaimer
The information contained herein is derived from sources believed to be reliable; however, this information is not guaranteed as to its accuracy or completeness. Furthermore, no responsibility is assumed for use of this material and no express or implied warranties or guarantees are made. This material and any view or comment expressed herein are provided for informational purposes only and should not be construed in any way as an inducement or recommendation to buy or sell products, commodity futures or options contracts.

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