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OPEC is gearing up for a hot summer on the road

June 23rd, 2021 -

About 3 Mins
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Demand data from Europe and the US is strong, but for how long?

Covid-19 was certainly not good news for oil prices or the energy sector. After a massive drop in oil prices in 2020, OPEC+, the oil cartel led by Saudi Arabia and Russia (or the Organisation of Petroleum Exporting Countries) had to intervene with strong measures to prevent oil plummeting much further than $20 per barrel of oil. One of the key measures was cutting oil outputs.

The impact of vaccines

As vaccines have been rolling out quickly across wealthy nations people are starting to embrace travelling again and oil demand has increased sharply. This has meant oil prices have gone upwards of $70 a barrel in June 2021 for the first time since 2019.

In its latest report, OPEC said demand would rise by 6.6% or 5.95 million barrels per day (bpd) in the second half of 2021.

OPEC+ still seems to be cautious about releasing bigger outputs, but with almost pre-Covid level demand data coming in from the US and Europe output levels could change in the coming weeks or months.

Balancing outputs

The higher demand and per barrel prices could reignite outputs by American shale producers who scaled back during the pandemic. Iran, one of the world’s top ten oil exporters, had its outputs curbed because of American sanctions. The controversial Iranian nuclear programme deal however could be renegotiated this summer, and should that happen, Iran’s oil output will most likely increase and could suppress current oil prices.

Much of the increase in demand has been driven by the recovery in the US and Europe, other nations such as India and parts of Asia are still struggling to control Covid and the latest Delta variant is spreading quickly which can have an impact on oil demand levels.

What about long-term oil prices?

It’s important to remember that many large nations, such as the US, have also started to invest more heavily in renewable energy. This is driven by consumer demand for alternative and more climate-friendly forms of transport and concerns about climate change.

So, whilst oil prices are on the up in the short-term the euphoria could be short-lived as climate change is taking over the news agenda again and the world continues to battle with Covid.

This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.

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