The decision by OPEC+ to postpone their meeting for a mass production deal on July 5th, and their failure to reach a production policy agreement for the period following August, have resulted in oil prices surging to a new peak in three years.
The West Texas Intermediate (WTI) crude futures for August rose by 1.46% to around US$76.26 per barrel, while the Brent Crude futures for September increased by 1.3% to US$77.16 per barrel.
OPEC+ plans to stipulate a mass production policy in the remaining months of the year, and has proposed an alleviation of 400K barrels each day between August and December that will lead to a total of 2 million barrels each day until the end of the year. OPEC+ also suggested to extend the reduction in production to the end of 2022.
However, the proposals were rejected by the UAE, and the meeting with them was eventually postponed from the initial convening date of the 5th due to the lack of a consensus. Mohammed Barkindo, the Secretary General of OPEC, merely commented that the date for the next meeting will be decided in due course.
OPEC+ had adopted historic measures under the pandemic in April 2020, and reduced almost 10 million barrels each day when the demand for petroleum products plummeted in order to support the oil prices. Since then, OPEC+ has been discussing a mass production policy, and is eyeing the return of petroleum to the market.
Suhail Al Mazrouei, the Minister of Energy in the UAE, admitted that this is not necessarily a good direction. However, he has assured that the country will support a temporary increase in supplies in the short term. The UAE is also hoping that the terms would be better if the policy is to be extended to 2022.
Analysts at TD Securities believe that the increase in future demand will contract the global energy market in a velocity that is faster than anticipated if there is no increase in production. The predicament will result in temporary deficits that significantly surpass expectations, and this will in turn propel the current oil prices to a higher level. The transcendence of oil prices is inevitable during summertime.
(Cover photo source: pixabay)