Global oil markets are about to “tighten significantly” unless the Organization of Petroleum Exporting Countries (OPEC) and its allies resolve their issues and step up production, the International Energy Agency (IEA) warns.
“Robust global economic growth, rising vaccination rates, and easing social distancing measures will combine to underpin stronger global oil demand for the remainder of the year,” the agency predicts in its monthly report.
It states that the current stalemate within OPEC+ may lead to a “deepening supply deficit,” resulting in higher fuel prices. These could “stoke inflation and damage the fragile economic recovery” of the post-pandemic world.
Brent crude prices, for instance, were trading close to a two-year high, at $75 a barrel on Monday, while US benchmark West Texas Intermediate was fetching $74 a barrel.
OPEC+ has been torn by a dispute between its two Middle Eastern member states, Saudi Arabia and the United Arab Emirates, over the latter’s production output quota. The organization was about to approve a plan on output increase last week, but instead postponed the talks due to the last-minute disagreement. This left the output levels for next month unchanged, even though fuel consumption has been quickly restoring to pre-pandemic levels.
The IEA report shows the OPEC+ standoff couldn’t have come at a worst time, with oil inventory stocks sinking to below-average levels. The agency also notes that the 400,000-barrel-a-day output increase OPEC+ is considering may be insufficient to help the market. According to IEA estimates, OPEC+ countries pumped 40.9 million barrels a day in June, which is at least 2.5 million barrels fewer than the agency projects for the second half of the year.
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