VIENNA – Oil prices continued to rise on Tuesday, a day after the OPEC + meeting kept its back-to-supply plan unchanged, with traders taking further account of tense market conditions. The OPEC + grouping consists of the Organization of the Petroleum Exporting Countries (OPEC), Russia and their allies.
OPEC + said on Monday it would stick to an existing pact for a gradual increase in oil production, sending crude prices to three-year highs and adding to inflationary pressures that consuming countries fear derail an economic recovery from the pandemic.
OPEC + has faced calls from large consumers, such as the United States and India, for additional supplies after oil prices have risen by more than 50% this year.
OPEC + “has reconfirmed the production adjustment plan,” the group said in a statement released after ministerial talks online, referring to a previously reached deal whereby 400,000 barrels per day (bpd) would be added in November.
An OPEC + source had told Reuters shortly before ministerial talks on Monday that the group had come under pressure to increase production more quickly, but added: “We are afraid of the fourth wave of coronavirus; no one wants to make big moves.
The group agreed in July to increase production by 400,000 b / d per month until at least April 2022 to phase out 5.8 million b / d of existing production cuts – already very small compared to the huge restrictions that were in place at the worst of the pandemic.
Demand rebounded quickly, while supply was disrupted by factors such as hurricanes that hit U.S. production and low levels of investment in the industry at the height of the pandemic when demand crunched.
Confirmation that OPEC + would maintain a supply cap, instead of feeding the market with even more commodities and pushing it towards a closer equilibrium, led traders to a buying frenzy for Brent contracts of the first month, as the decision guarantees a tight supply image in November and December.
“Is the rise in the price of oil becoming an unpredictable bubble?” Traders are certainly thinking about when and at what point a price cap will begin to form, ”asked Louise Dickson, senior oil markets analyst at Rystad Energy.
And Dickson responded by saying: “The tight market has not been satisfied by any further relief from OPEC + supply, which is fueling the supply-constrained rise in oil prices, but the dramatic upturn in the market. third quarter can only be repeated in the coming months if unusual circumstances – be it weather events or unforeseen supply outages – strike again.
“Otherwise, the steady increase in OPEC + volumes will gradually lift oil prices out of their deep downfall.
“OPEC + producers will certainly monitor the impact of high prices on sales, as well as the evolution of market balances until the end of the year. winter weather risks and upside risk associated with oil demand.
So far, OPEC + has not come to the rescue of the offer, but at the same time, it has not removed the floor of the offer from below the market. However, the market reaction is one of the strongest to a largely already known market outcome – that OPEC + would stick to its chartered phase-out plan, Dickson said.
“The market took the good news it was waiting for and followed it. At the same time, it is a market full of risks and many unknowns, and it has already demonstrated its capacity for speculation even at the smallest macro-queues.
“The speed with which the recovery from COVID is unfolding, the harshness of the winter, and the development of financial and money markets in the coming months can all tip the oil price balance,” Dickson added.
Dickson said traders see no emergency action on the supply side to suppress rising oil prices and add value to the hope that strong demand for oil will materialize in the next quarter. .
“As oil gets more expensive day by day, buyers must reassess their reaction to such a sustained and bullish cycle that has not been seen since the so-called commodity ‘super-cycle’ days of 2008 and 2011, “she added. – Agencies