OPEC+ agrees to continue increasing production in July, but why do oil prices continue to soar?

With oil prices rising to their highest level since 2018, OPEC+ held a conference call on Tuesday evening to finalize a blueprint for its production plan for the coming months.

After increasing production in May and June, OPEC+ agreed to maintain its original plan to increase production in July by easing crude production cuts in June and July, OPEC representatives said.

Under the plan, OPEC+ will increase production by 350,000 bpd and 441,000 bpd in June and July. In addition, Saudi Arabia will continue to unwind its voluntary production cut of 1 million bpd announced earlier this year.

It is understood that no policy beyond this has been discussed at the meeting. The possible return of Iran to the international oil market is a factor to be considered in the ministers’ decision. Another factor is the impact of the new coronavirus mutant strain. While there is a large supply gap in the market to be filled in the second half of the year, both of these factors may cause some oil producing countries to advocate a moratorium on further production increases.

Later, OPEC Secretary General Barkindo said forecasts continue to show a positive trajectory for economic and oil demand growth, particularly in the second half of 2021. Global oil demand will exceed 99 million barrels per day in the fourth quarter, so the indicator will return to the level before the outbreak.

At the ministerial meeting, the Saudi oil minister and the Russian deputy prime minister both delivered speeches.

Saudi Energy Minister Abdul Aziz said that the situation is still unclear and OPEC+ should actively stabilize the oil market. Oil inventories are falling back to 2015-2019 average levels, oil demand conditions are showing clear signs of improvement, and the oil market is welcoming additional OPEC+ crude supplies.

Russian Deputy Prime Minister Novak noted that OPEC+ will discuss the production outlook and the oil market and that our cooperation benefits the global market. The economy is recovering and a faster pace of vaccination will enable higher population mobility.

Angola’s oil minister said that the members of the OPEC+ agreement have made great progress in achieving stability in the oil market and have contributed significantly to boosting the oil industry. The promotion of global vaccination has created optimism for global economic growth and oil demand.

Finally, OPEC representatives revealed that the OPEC+ Joint Ministerial Monitoring Committee (JMMC) has recommended adherence to monthly meetings. The document shows that the next OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting will be held on July 1.

Notably, despite the bearish signals released by OPEC+, Brent crude futures broke above $71 per barrel for the first time since March 8 during the meeting, rising 2.42% during the day.

In fact, the pull-up in oil prices began as early as today’s Asian session, with Golden Ten reporting earlier today that the wave of pull-up was largely due to the continued economic recovery. The International Energy Agency (IEA) noted that the supply-demand gap could widen if OPEC+ sticks to its policy. Unless OPEC+ increases production, oil prices will face upward pressure.