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Oil unfazed by larger OPEC+ hike

This week’s OPEC+ announcement was poised to be a shocker, having agreed to a larger-than-usual 648,000 bpd output hike for July and August.

That’s roughly 50% more than the 400k-430k bpd monthly hikes that had been agreed to in a deal last summer. Perhaps more significantly, it signalled the alliance’s shift away from its ‘gradual stance’ in restoring oil output that had been shuttered since the pandemic.

Yet, oil benchmarks shrugged off the surprise OPEC+ decision to hasten its output restoration plans, reflecting the market’s firm belief that the global supply deficit will persist.

Oil unfazed by larger OPEC+ hike

Instead, markets were more fixated on the latest package of EU sanctions that aim to choke off Russian oil.

Using the projected global demand of 100 million bpd as a reference point, the latest OPEC+ decision involves merely 0.4% of total global demand (the OPEC+ move merely brings forward the 400k bpd hike intended for September, spreading it out across July and August instead). Compare that with Russia’s output which satiates about 10% of global demand.

No surprise then markets this week chose to focus on the latter (EU sanctions on Russian oil) over the former (OPEC+ decision to further loosen its supply taps).

Coupled with China’s eventual easing of its virus-curbing measures, these latest developments in oil markets translate into supply-demand dynamics that ensure a supportive environment for oil bulls.

The respective uptrends in Brent and WTI should remain firmly intact, though most of the gains for these benchmarks appear to be in the past.

 

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