Oil holds above $75 as investors weigh OPEC+ deadlock with fresh talks ahead
Oilprices held above $75 per barrel on Monday, after OPEC+ output talks came to a deadlock.
- The UAE rejected a Saudi Arabia-backed extension to the current OPEC+ internal supply deal.
- If the impasse is not resolved, analysts see scenarios where oil prices skyrocket or slump.
Oil futures held above $75 a barrel on Monday morning, as
The OPEC+ group of major oil-producing countries failed last week to come to agreement on output quotas for 2021 and on extending the underlying internal supply deal by seven months, to December 2022. A fresh round of talks is due on Monday.
Saudi Arabia and Russia are pushing for a slow increase of 400,000 barrels a day each month for the rest of 2021, which most OPEC+ members back. The snag came with the extension to the deal that denotes how much oil each country contributes to overall supply from the group. The UAE refused to accept the extension without an adjustment to its contribution quota, which it sees as out of line with its output capacity and unfair compared with Saudi Arabia's arrangement.
In April 2020, OPEC+ agreed to limit oil production for its members until April 2022 as the COVID-19 pandemic caused demand to plummet. The UAE is one of the smaller exporters, producing 2.64 million barrels per day in May 2021, compared with 8.482 million barrels per day for Saudi Arabia, data from the US Energy Information Administration showed.
Should the deadlock in OPEC+ not be resolved, then the July ouput agreement could automatically run throughout August by default, said Kevin Solomon, energy economics analyst at StoneX.
"This would be troubling scenario for the global economy; the oil market would tighten at an even faster rate and prices could quickly exceed $80/bbl, which would hamper the global economic growth prospects through inflationary pressures," Solomon said in a note.
Demand for oil is likely to rise as a result of the easing of pandemic restrictions, so the restrictions on supply could cause prices to skyrocket, he said. Ensuing price rises could in turn slow down global economic recovery.
Alternatively, OPEC+ could break apart over the deadlock. That would likely flood the oil market with supply as producers rushed to take advantage of a lack of quotas, some analysts say. In that scenario, prices would slump as supply outstripped demand.
With futures at their current level, the likelihood is for OPEC+ to find a way to resolve the impasse, Bjarne Schieldrop, commodities chief analyst at SEB said.
"However, with a Brent crude
This report has been updated to correct the figure for the proposed output increase.
- SIMPLY PUT: What happened before India got Freedom@Midnight
- Here’s how much banks have increased home loan interest rates
- Avatar 2, Black Panther 2, Ant Man — Here is a complete list of Hollywood movies expected to hit Indian theaters in the next 6-7 months
- Qmin has been profitable business for IHCL from day one, says Jehangir Press
- India's foreign exchange reserves fall to $573 bn