Oil fell down almost 5% as the Organization of Petroleum Exporting Countries and allies (OPEC+) reached an agreement this Sunday, in regards to the production curbs and the amount of increase each country of the organization would have.
Firstly, the fall of oil prices was of almost $3 dollars per barrel; their largest daily decline since late March. Brent crude was down $3.61, or 4.9%, at $69.68 a barrel; while the U.S. oil, the West Texas Intermediate, was down $3.75, or 5.2%, at $68.06 a barrel; according to Reuters.
Secondly, OPEC+ officials reached an agreement on Sunday on how to increase oil production in an attempt to cool down oil prices; as this month they reached their highest levels on more than two years.
Thirdly, the group had already tried to reach agreement on past weeks, as we reported previously; only mounting the controversy, as Saudi Arabia and the United Arab Emirates, the two biggest Arab producers of oil, didn’t reach agreement; sparking worries about an oil prices war.
However, UAE’s Energy Minister Suhail bin Mohammed al-Mazroui, said he and his country were happy about finally reaching agreement; on the other hand, Saudi energy minister Prince Abdulaziz bin Salman declined to answer questions on how they reached consensus.
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Bullish oil sentiment must remain cautious
Moreover, by the wake of the pandemic OPEC agreed to cut almost 10 million barrels per day; as the pandemic weakened, those production curbs were gradually reinstated to around 5,8 million bpd.
In addition, Saudi Arabia intended to extend those curbs on to December 2021; while the United Arab Emirates and other countries insisted on having gradual increases. Finally, they decided that, from August to December 2021, OPEC+ will increase 2 million bpd every month. Consequently, production curbs would be out fully by September 2022.
On the other hand, experts agreed on the fact that, after OPEC’s agreement, oil priced would cease to go up. “Longer-term, free and additional production capacities from OPEC+ countries are the key reason why we see oil moving lower again.” said Julius Baer analyst Carsten Menke, quoted by Reuters.
Nevertheless, PVM Oil analyst Tamas Varga, said that the bullish sentiment on economic recovery from the pandemic still needs a very cautious approach; as new variants of the virus may hit the world economy again. “The global COVID situation is turning dire again; it understandably makes investors wary although it must be stressed that restrictions are being eased in other parts of the world.”