The anatomy of a Great Rebalancing provided a set-up for a fast recovery in energy costs as the world begins to emerge from the pandemic. With no accord on boosting oil production, tensions within OPEC+ are driving up oil prices, and the divide between Saudi Arabia and the UAE is widening. The stage is being prepared for a summer breakthrough, according to Daniel Ghali, Commodity Strategist at TD Securities.
“OPEC+’s unduly cautious stance has pushed crude oil prices higher by a large margin, more than offsetting fears about mobility linked to a spreading Delta variation. The August production deadlock on Monday could lead to a big price overshoot during this Summer Breakout.”
“While back-channel conversations with consumer nations pressuring the UAE and Saudi Arabia are expected to continue, the deadlock means that current quotas will remain in place.”
“With no rise in output, future increases in demand should cause global energy markets to tighten even more quickly than expected. This occurs at a time when the cost of capital for typical swing production has likely increased indefinitely, implying that energy supply risks driving up prices. This deadlock will result in a temporary and much larger-than-expected deficit, which will likely fuel further higher prices in the short term.”/n
