Oil prices strong ahead of OPEC meeting
COVID-19 remains a major oil price wildcard
By Rob Roach, ATB Economics 29 June 2021 1 min read
The West Texas Intermediate (WTI) crude oil benchmark closed above $US70 for the 13th trading day in a row on Monday. WTI averaged under $US40 a barrel last year.
The Western Canadian Select benchmark has also been performing well, consistently closing above $US55 since June 7 compared to an average of about $US27 last year.
The strong prices are in response to rising demand associated with the reopening of economies and concerns among some traders that reduced investment in supply during the pandemic could lead to shortages.
The OPEC cartel and its allies (a.k.a. OPEC+) have been slowly adding supply to the market and could decide to add more at a meeting on July 1.
A modest increase of around 500,000 barrels per day would support current price levels as rising demand over the summer soaks up the added supply. If, however, OPEC+ decides to open the taps a bit more, this would put downward pressure on prices.
Whether or not sanctions against Iran are lifted is also a factor that could see over 1 million barrels per day of oil returning to the market.
And while U.S. shale producers have been hesitant to ramp up production during the price rally, this could change and boost supply.
At the same time, COVID-19 remains a major oil price wildcard with global demand potentially falling if the Delta variant and rising cases in Asia and Australia lead to sustained lockdowns.
Despite the many moving parts, a likely scenario is OPEC+ aiming to keep prices from rising too much higher with everyone watching the path of the virus to see how it affects demand.
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