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

The uranium price is soaring – here’s the best way to play it now
Energy

The uranium price is soaring – here’s the best way to play it now

Uranium, the key ingredient to nuclear power, has been ignored since the bubble of 2006, but now the uranium price is rising again. Dominic Frisby exp…
22 Sep 2021
Why is the UK short of CO2 and what does it mean for you?
UK Economy

Why is the UK short of CO2 and what does it mean for you?

The UK is experiencing a carbon dioxide shortage that could lead to empty shelves in supermarkets. Saloni Sardana explains what’s going on and how it …
21 Sep 2021
How high energy prices are driving up food prices too
Soft commodities

How high energy prices are driving up food prices too

High energy prices aren’t just affecting our heating bills, they’re making food more expensive, too. Saloni Sardana explains what’s going on.
21 Sep 2021
What you should do if your energy provider goes bust
Personal finance

What you should do if your energy provider goes bust

At least four energy firms have gone under in recent days as the price of gas and electricity soars. Saloni Sardana looks at what to do if your energy…
20 Sep 2021

Most Popular

Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021