Oil came back to six-week high despite Opec’s unexpected report delaying the expectations of global oil demand to 2022. The US supply disruptions have entered a third week, as the production is proving to be more difficult to restart than earlier envisages, after the Ida disaster. What has fueled the recent rally, or at least kept the bears at bay, is more of the bad weather around the Gulf of Mexico, that could potentially lengthen the disruptions by another month.
Besides the short-term hiccup on the US shores, most fundamental variables point towards a position of near equilibrium by the end of year. China’s demand resurgence has been at the heart and center of global demand recovery. The Opec Plus group has gone about its business quietly – adding production week after week.
The July deal has seen the group’s production jack up by 4-5 percent as Saudi Arabia and Russia are holding on the cartel together – while ensuring compliance from within and smaller players. Nigerian voluntary supply cut reduced the scale of supply boost in August, but the bigger picture seems well in place to ensure 0.4 million barrels a day will continue to be added unfazed till the end of 2021.
Opec has trimmed the global oil demand forecast for the last quarter of 2021 citing Delta variant as the main hindrance. That said, the latest report says the 2022 rebound would be stronger than it had projected earlier – making Opec the most optimistic of the big three oil price predictors. The US shale production has continued to rise. There are increasing signs of Iranian oil back in the mix as negotiations with the West enter advanced stages. Barring extreme weather-related supply shocks, there is ample supply in the market to lead to cooler prices by Q4 2021.
Volatility has continued to remain high as short-term developments have swayed prices either way in the last six to eight weeks. For Pakistan, the short-term supply disruptions spell bad news, as the government has been hoping for the oil prices to ease, for it to be able to start thinking of levying petroleum taxes, alongside reduction in the burgeoning current account deficit. Oil above $65/bbl is a tough spot for the government – as it has laid bare its inability to pass on the impact.
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