WTI Crude and Brent Crude fell sharply on the news that OPEC+ had resolved production issues. Oil prices dropped on July 19 after the producers broke through a deadlock to reach an agreement on oil production. Brent lost 2.41% while crude fell by 2.55%
OPEC+ agreed to increase oil production by up to 400,000 barrels per day. As part of this deal, the group will reverse an existing cut of 5.8 million barrels per day by September 2022.
Losses have been pushed by growing worries that a resurging pandemic may trigger a re-introduction of restrictions on economic activity. If such a scenario happens, it might hit demand for fuel in developed economies and put some downside pressure on prices.
The group comprising of oil-producing countries reached this deal after weeks of stalled talks as a result of the United Arab Emirates (UAE) refusing to increase oil production without scaling up its baseline quota. Prices of oil have surged to record highs in recent weeks as a result of demand outstripping supply.
In 2021, OPEC+ agreed to cut output by 10 million barrels daily to offset plunging demand for fuel pushed by the pandemic. Nonetheless, oil demand has rebounded steeply as economies throughout the world emerge from the Covid restrictions.
The alliance has slowly wound down the COVID-induced supply cuts to 5.8 million barrels per day. In the past week, the International Energy Agency warned that the prices will remain high unless the supply pressures are eased.
Analysts were attracted by the deal, predicting that the oil market is expected to remain tight despite the increase in supply. ANZ Research said:
“Even with higher output, the market remains relatively tight.”
Goldman Sachs analysts mentioned that oil producers were most likely going to focus on:
“maintaining a tight physical market all the while guiding for higher future capacity and disincentivizing competing investments.”