The price of a barrel of WTI oil reached $68.7 last week. Moreover, at some point, the quotes even exceeded the key resistance level of $70.
OPEC+ has agreed on another increase in oil production by 400,000 barrels per day. Unlike the previous long meetings, the video conference last week took less than an hour. The participants of the OPEC+ deal agreed to follow the established plan for a gradual increase in oil production. The alliance believes that the shortage of raw materials will continue until the end of this year, and in 2022 it will transform into an oversupply. Many market participants believed that OPEC+ members would discuss the possibility of adjusting this plan against the background of the negative impact of the delta strain of coronavirus. However, OPEC has proved that its representatives can meet and negotiate without any problems. Probably, this understanding will still be useful in the coming years, when the alliance will have to show flexibility in responding to market changes.
The latest decision of OPEC+ looks logical, given that oil prices have returned to pre-crisis levels, and the shortage of raw materials seems to remain until the end of the year. The decline in world oil reserves indicates its shortage, and demand continues to grow, albeit unevenly. Therefore, the OPEC + alliance decided to stick to the existing plan.
Read more: OPEC: history, goals and functions
Oil prices remain high amid the weakening of the US dollar and the effects of Hurricane Ida on production in the Gulf of Mexico. According to Reuters, more than 94% of oil production in the Gulf, or 1.7 million barrels per day, remains closed. To avoid a shortage in the fuel market, the US Department of Energy allocated 1.5 million barrels from emergency reserves to coastal refineries for gasoline production. At the same time, not all refineries have resumed work.
For oil prices, production disruptions are a positive factor, supporting prices, especially the US benchmark WTI. The spread between the nearest contracts for Brent and WTI this week decreased to $3 after $4 last week.
Another support factor, even more important than those described above, is strong demand in importing countries. In the US, statistics from the Ministry of Energy this week showed a jump in fuel supplies to the highest since September 2019. At the same time, Reuters reports a record demand for gasoline in India, the third largest importer of oil in the world. The Indian division of Moody's expects that gasoline consumption in the country will grow by 14% to a record 739,000 barrels per day in the fiscal year to March 2022. A comparable increase in consumption by 11-13% over the year can also be in China, the second consumer of oil in the world.
The forecast expects a corrective decline in the price of WTI oil to the levels of 68.50, 68.25, 68, 67.50 and 67 dollars per barrel.