Oil Drops as OPEC+ Maintains Gradual Output Increases

September 2, 2021
oil futures
Image Credit: RigZone

By Adedapo Adesanya

Oil prices went south on Wednesday after the Organization of the Petroleum Exporting Countries and allies (OPEC+) agreed to stick to their existing policy of gradual output increases.

At the market yesterday, the Brent crude fell 28 cents or 0.42 per cent to settle at $71.29 a barrel, while the US West Texas Intermediate (WTI) crude slid 36 cents or 0.52 per cent to settle at $68.23 a barrel.

OPEC+ at its monthly meeting agreed to stick to a policy from July of phasing out record output cuts by adding 400,000 barrels per day a month to the market.

This decision means the alliance ignored calls by American President Joe Biden, who called on OPEC to boost production by more than the agreed 400,000 barrels per day monthly to mitigate the effect of rebounding fuel demand on prices at the pump.

The market also had its hoped dashed after the oil minister of Kuwait, Mr Mohammad Abdulatif al-Fares, assumed that the group might curb supply again amid a slowing market, blaming the potential curbs on the fourth wave of COVID-19 infections.

However, Wednesday’s meeting did not yield any noteworthy surprises as the group, after a very quick meeting, decided to go ahead with the already planned increase.

Sources also suggested that most OPEC+ members were happy with Brent crude prices of around $70 per barrel.

Still, the 23-member group revised the 2022 oil demand growth forecast to 4.2 million barrels per day, up from a previous 3.28 million barrels per day, potentially building the case for higher output in future.

The 2022 outlook looks optimistic based on 2021 data. OPEC+ expects demand to grow by 5.95 million barrels per day after a record drop of about 9 million barrels per day in 2020 due to the pandemic, but demand only rose by some 3 million barrels per day in the first half of 2021.

These overlooked the expected outcome as US crude inventories fell by 7.2 million barrels last week to 425.4 million barrels according to the Energy Information Administration (EIA). Analysts had expected a 3.1 million-barrel drop.

Meanwhile, offshore oil and gas production in the Gulf of Mexico gradually recovers after Sunday’s storm took down a percentage of US production.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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