Energy Minister Prince Abdulaziz Bin Salman said recent market developments confirmed that the decision to gradually increase production, made in April, was "the right decision", as the OPEC+ meeting on Tuesday concluded with a solution upon which all OPEC+ members agreed. Prince Abdulaziz said that there were still "clouds on the horizon" regarding the recovery and demand for energy, but after another round of talks Tuesday the OPEC+ meeting saw the groups agree to continue gradually easing production cuts amid a rebound in oil prices. The OPEC+ grouping will boost output in July, in accordance with the group's April decision to return 2.1 million barrels per day to the market between May and July. Production policy beyond July was not decided on, and the group will meet again on July 1. International benchmark Brent crude futures traded at $71.17 a barrel on Tuesday, up around 2.7%, while West Texas Intermediate crude futures stood at $68.65, for a gain of more than 3% and the contract's highest level in more than two years. Oil prices have climbed more than 30% this year. OPEC Secretary General Mohammad Barkindo said Monday that he did not believe higher Iranian supply would be a cause for concern. "We anticipate that the expected return of Iranian production and exports to the global market will occur in an orderly and transparent fashion," Barkindo said in a statement. OPEC+ initially agreed to cut oil production by a record of 9.7 million barrels per day last year as global fuel demand collapsed, before easing cuts to 7.7 million and eventually 7.2 million from January. By July, the group's production cuts will be on track to stand at 5.8 million. Rystad Energy's Oil Markets Analyst Louise Dickson commenting on the oil prices gain , with Brent topping the $70 mark, said traders are bullish on OPEC+ policy stability and on the rising global oil demand. "Oil prices today are rising as the market is getting increasingly confident that demand is reaching the end of the recovery tunnel, with strong usage indications coming globally, from the US to China. "Doubling the demand enthusiasm, today's OPEC+ meeting has left the the group's policy unchanged, leaving the supply comeback plan unchanged through July. Traders are bullish as they assume the group will make no tweaks to its plan to slowly and gradually bring supply back to the market through July," Dickson said. "Any doubts about the current plan and plans for future supply policy will likely be addressed at the next meeting on June 24 to get a better pulse on the Iran nuclear negotiations and upstream implications, to make a better-educated call. Else, since May 2020 and the monster OPEC+ cuts, the market has been usually bullish leading up to and on the day of OPEC+ meetings," Dickson added. The prevailing market assumption has been that the oil-producing countries will remain diligent and generous and prevent the market from being vastly over-supplied. This is the enthusiasm that has sent Brent front-month futures above $70 per barrel this morning, exactly on par with Rystad Energy's call for $70 per barrel Brent this summer. The participating members of the OPEC+ deal, i.e. excluding Iran, Venezuela, Libya, and Mexico, plan to pump about 36.2 million bpd of crude oil for July 2021, a more than 2 million bpd increase since the decision was taken back in April 2021, when the group was targeting production of 34.1 million bpd. Looking back at demand, the market is shrugging off the downside risk spreading across Asia. While the more than 1 million bpd demand dent in India is likely already priced in, the wave of new restrictions in Japan, Indonesia, Thailand, and Vietnam may not yet be fully appreciated in terms of oil consumption losses. Gasoline demand in the US is increasing as we enter the summer season and also Chinese factory activity had a very strong May, both cementing trader enthusiasm and helping prices grow. Overall, there is a strong consensus that oil demand is on the mend, but there is a variety of interpretations of just how fast and sustained the upward curvature will be. Rystad Energy still maintains guarded skepticism compared to other market forecasters, as the rapid distribution of vaccines and subsequent boosters will still not bring herd immunity to many countries, especially in the developing world, until the end of 2021. "This means there may be a need for more lockdowns and more oil demand destruction along the way. Unless new lockdowns are imposed or extended, we see oil demand recovering during the second part of the year, mainly boosted by the structural growth of road transport and petrochemicals," Disckson said. Despite this steady recovery, the growth rate of oil demand, won't be strong enough to allow a full recovery to pre-virus levels. Rystad Energy expects total liquids products demand to average 94.5 million bpd in 2021, lower than the OPEC research division estimate of 96.4 million bpd. — Agencies
