Brent crude prices continued to gain ground over the past month, hitting an over two-and-a-half-year high in early July, boosted by a tight production becoming increasingly outstripped by demand amid a sustained global economic recovery. On 9 July, oil traded at USD 75.6 per barrel, which was up 4.6% from the same day last month. Moreover, the benchmark price for global crude oil was up 78.0% from the same day last year and was 45.8% higher on a year-to-date basis. The preliminary agreement that emerged from the OPEC+ meeting on 1 July pointed to an output increase of 400 million barrels per day (mbpd) per month for the August–December period, which was softer than the expected rise of 500 mbpd for August. This, coupled with the group’s plans to extend the output cut deal from April 2022 until end-2022, bolstered prices. That said, the final agreement fell through due to objections from the UAE over the calculation of production targets, fueling fears of a supply crunch in August if a deal on higher production is not reached, which further boosted prices in turn. This came amid a sustained global economic recovery which bodes well for oil consumption, although the spread of new Covid-19 variants likely bruised prices somewhat. Crude prices are forecast to retreat from their current levels by year-end, as global production gradually rises. Despite July’s roadblocks, OPEC+ is expected to agree on the easing of output cuts for H2 by the end of the month, which will likely restrain oil prices from climbing further in the remainder of the year. That said, recovering economic activity and the release of pent-up travel demand thanks to widespread vaccination efforts bode well for oil demand in H2, which should keep prices elevated. New Covid-19 strains, volatile output in some countries, a potentially prolonged OPEC+ standoff and geopolitical tensions are all major risks to the baseline scenario.
