Oil goes off the boil

Brent crude prices fell below $70 a barrel this week after Opec members Saudi Arabia and the United Arab Emirates patched up their differences.

Brent crude prices fell below $70 a barrel this week after Opec members Saudi Arabia and the United Arab Emirates patched up their differences. The squabbling between the two countries about production quotas had prevented the oil cartel from agreeing to raise output.  

Asked how the two sides had reached their compromise the Saudi energy minister replied, “Why should I divulge it? This is an art and we keep it between ourselves”, reports Natasha Turak for CNBC. 

Opec+ (Opec plus Russia) is still collectively pumping 5.8 million barrels per day (mbpd) less than it did before the pandemic, but it will now raise production by 400,000 bpd every month beginning in August. By September next year it plans to have unwound the entirety of its Covid-19-induced production cuts. 

The members feel confident that a recovering global economy can absorb the extra capacity.  Brent crude had been trading as high as $77 earlier this month, but the Opec+ deal combined with worries about the Delta variant to rout the oil bulls early this week, says Pippa Stevens on CNBC. Brent fell by 6.75% while US futures lost 7.5%. Despite the plunge, analysts think “a tight market will continue to support prices”. Citi “sees Brent…climbing to $85 or higher this year” as “pent-up leisure demand” prompts a summer consumption surge. 

The gradual pace of the output hikes should keep global oil markets in deficit over the next few months, according to Samuel Burman of Capital Economics. So Brent should stay around current levels of $70-$75 per barrel for the remainder of this year. By early 2022 the global market will swing into surplus as the output hikes become bigger. “We expect that the price will fall to $60 by the end of 2022 as its supply floods back onto the market.” 

Recommended

Price of gas soars as Moscow turns off the taps
Gas

Price of gas soars as Moscow turns off the taps

As Russia cuts its gas exports to the EU, the price of natural gas continues to rise. Restricted supplies could see energy rationing and recession i…
6 Jul 2022
The transition to renewable energy is easier said than done
Renewables

The transition to renewable energy is easier said than done

We are on a path to “net zero” carbon emissions, says Edward Chancellor, but fossil fuels will be with us for some time yet.
4 Jul 2022
How to invest in copper, the most important metal in the world
Industrial metals

How to invest in copper, the most important metal in the world

As the world looks to electrify and try to move away from fossil fuels, copper looks set to be the biggest beneficiary. But how can you invest? Rupert…
30 Jun 2022
Why petrol prices are higher than in 2008, despite lower oil prices now
Inflation

Why petrol prices are higher than in 2008, despite lower oil prices now

The price of petrol is at an all-time high. Yet despite oil prices being higher in 2008, petrol was cheaper back then. Saloni Sardana explains why.
30 Jun 2022

Most Popular

Is inflation about to drop as recession takes hold?
UK Economy

Is inflation about to drop as recession takes hold?

Central banks are raising interest rates in an attempt to curb soaring inflation. But will that push the economy into recession? John Stepek looks at …
5 Jul 2022
Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
Is it OK to buy Scottish Mortgage investment trust again?
Investment trusts

Is it OK to buy Scottish Mortgage investment trust again?

Scottish Mortgage investment was hit hard by the tech-stock crash, and it is still being buffeted by headwinds. Should new investors wait for those to…
5 Jul 2022