Page 6 - FSUOGM Week 27 2021

FSUOGM COMMENTARY FSUOGM

ING's oil price forecasts.

increase output substantially. The Saudis do not resolution is not found, which suggests increased
want to give in to this demand, given that it is volatility in prices.
likely several other members would also want With large inventory drawdowns expected
their baselines adjusted higher. whether output remains unchanged or increases
With neither side willing to compromise, by 400Mbbls/d per month, oil prices are likely
Monday’s scheduled meeting was cancelled, to remain well supported in the near term. As
and for now its not known when the next meet- a result, we have revised higher our short-term
ing will take place. As things stand, this means oil price forecasts. We now expect ICE Brent to
that in theory OPEC+ output levels will remain average $75/bbl over 3Q21, but clearly there is
unchanged in August. However, in practice it is the risk of spikes higher, given the uncertainty
hard to believe that some members will stick to at the moment. We have retained our view that
the deal amid the fallout. Brent will average $70/bbl over 4Q21. This is
Failing to come to a quick compromise would assuming that OPEC+ will eventually come to a
mean the beginning of the end of the broader deal. There will be growing pressure on OPEC+
OPEC+ deal. This is something that the group from consumers to increase output. India has
would want to avoid, particularly with last year’s made it clear a number of times that they want
price war still fairly fresh in everyone’s mind. the group to increase output, whilst the US
government has asked OPEC+ to find a com-
How badly does the market need additional promise, which will allow output to increase. In
supply? addition, we continue to hold the view that Ira-
The oil market has tightened considerably since nian supply will make a comeback towards the
last year, with OPEC+ doing a great job in rebal- end of this year, which should help relieve some
ancing it. OECD oil inventories are back in line of the tightness.
with the 2015-19 average, and inventories are set A scenario where we could see significantly
to continue falling with global oil demand recov- weaker prices, is if the group fails to find a solu-
ering as we move through the rest of the year. By tion to the standoff. The longer it persists, the
the end of this year, demand should be around more likely that we start to see compliance slip,
97% of pre-covid-19 levels. So, without increas- and the deal slowly fall apart. This would be a
ing supply further over 3Q21, the market is likely scenario that OPEC+ would want to avoid, given
to see inventories drawing down by around that there is still a large amount of uncertainty
2MMbbls/d, while over 4Q21, the drawdown over the demand outlook.
would be more than 2MMbbls/d. Therefore, Warren Patterson is the ING’s Head of Com-
the market needs to see supply increasing over modities Strategy. This note first appeared on
2H21. Even if we do see some sort of resolution, ING’s THINK.ING portal here.
and the group eventually agrees on a 400Mbbls/d Content Disclaimer: This publication has
supply increase per month from August through been prepared by ING solely for information
until the end of this year, the market will still be purposes irrespective of a particular user's
drawing down inventories, and so prices should means, financial situation or investment objec-
still be relatively well supported. tives. The information does not constitute invest-
ment recommendation, and nor is it investment,
What does this mean for the market? legal or tax advice or an offer or solicitation to
The fallout within OPEC+ means increased purchase or sell any financial instrument. Read
uncertainty in the months ahead if a quick more ™

P6 www. NEWSBASE .com Week 27 07•July•2021