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OPEC+ stuck to their plan to cautiously raise output as expected but stopped short of discussing what comes next after July. Considering demand is projected to grow at a fast clip, the market is set to face a considerable deficit during the next six months under these assumptions. The group’s cautious return to market, Iranian production notwithstanding, has created the set-up for $70+/bbl crude, according to Bart Melek, Head of Commodity Strategy at TD Securities.

OPEC+ keeps production increases on plan for now

“OPEC+ kept to its widely expected plan to increase production in July, as the Saudi led cartel sounded a bullish note on the global oil demand recovery. The producer group agreed to keep to its existing plan of raising oil production quotas by 350,00 bpd in June and 440,000 bpd in July.”

“Given demand is projected to grow by over 5 million b/d in H2-2021, there will likely be a considerable deficit during the next six months. Since the OPEC+ planned supply will not keep up with demand growth, it could be argued that the producer group will likely increase production once these risks are mitigated, as we believe they want to regain their market share and do not want a price spike which would incentivize US shale producers to grow output or destroy demand. But any supply increases won’t be announced until the Iran production issue has clarity.”

“We expect that the global oil market will remain in a sizable deficit over the near term, which is price supportive. As such it is reasonable to say that WTI will likely push through the low $70s/bbl, but won’t surge much higher on a sustained basis, as currently sequestered OPEC+ capacity gets redeployed and Iran increases output.”