The second half of the year is kicking off with some OPEC+ drama, along with other major market events that carry enough weight to influence various asset classes:

Monday, July 5

  • OPEC+ talks to resume?
  • Composite/services PMIs for China, Eurozone, UK
  • US markets closed

Tuesday, July 6

  • RBA policy decision
  • Eurozone retail sales
  • Germany factory orders, ZEW survey expectations

Wednesday, July 7

  • FOMC minutes
  • US JOLTS report
  • Germany industrial production

Thursday, July 8

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  • EIA crude oil inventory report
  • Germany trade
  • US initial jobless claims

Friday, July 9

  • China CPI, PPI
  • G20 meeting on global minimum tax
  • BOE Governor Andrew Bailey, ECB President Christine Lagarde partake in panel discussion
  • UK industrial production

 

Oil markets left in limbo

Recall that, on 1 July, OPEC+ had been due to announce its decision over output levels for August. The alliance of 23-nations is now embroiled in a spat over the duration of its existing production plans. This leaves global markets unsure over how much oil it will get next month and beyond.

According to media reports, Saudi Arabia and most of OPEC+ have an agreement until the end of 2022. The UAE however is reportedly holding out, only agreeing to a supply increase over the next few months but demanding better terms for next year.

To be clear, such delays and differences within OPEC+ are not new, and at least markets are cognizant that there are a few more weeks to settle this dispute. That’s why Brent prices appear unfazed by the heightened OPEC+ uncertainty during the Asian morning session.

If this impasse extends without a deal to gradually raise output (said to be anther 400k bpd next month), OPEC+ is bound to keep its output levels at current levels.

This means the world cannot get the oil it’s craving for, which could send oil prices skyrocketing even higher!

However, there is a bigger threat that could play out when the current deal ends in April 2022. If the OPEC+ alliance breaks down, that could threaten a repeat of the 2020 price war that saw every major oil-producing nation fending for itself and pumping at will.

Thanks to the global economic recovery, the world needs more oil now – that much is clear.

But consider this worst-case scenario: OPEC+ unravels at a time when more Iranian oil supplies come back to the market, pending a US-Iran nuclear deal, while the delta variant of the coronavirus reinforces lockdowns in major economies. If this trifecta of negative risks become reality, that could trigger another capitulation in oil prices, undoing much of the tremendous gains it has achieved (293.4%) since recovering from the depths of April 2020.

 

Need a recap on all things OPEC? Check out our ‘Markets Extra’ podcast:

(28 June 2021) OPEC Preview: Could a cautious cartel pave the way for $100 Brent?

(25 Feb 2021) What do OPEC+ and “Guardians of the Galaxy” have in common?

 

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