OPEC+ talks collapsed for July

On Monday, after a two-hour-long delay, the OPEC+ meeting was cancelled. Divergences between the UAE and the rest of the group, particularly Saudi Arabia, were too large to have a constructive meeting. The group’s agreement fallback clause remained in place, no increase of production was authorised for August to this date. 

Needless to say, as most market observers were highlighting the need for OPEC+ barrels to come back to the market by at least 0.5 mb/d in August, this outcome has changed the outlook for prices. ICE Brent’s backwardation breached the 1$/b mark at the prompt, as we anticipate the crude supply-demand mismatch to reach 3 mb/d in August (vs 2.3 mb/d in our previous forecasts). This bullish outcome for prices in the short term has to be weighted by gloomier scenarios, where the UAE’s departure from the producer group would put the oil market in unchartered territory, as they could ramp up output by close to 0.7 mb/d overnight. The stability of the OPEC cartel would be furthermore at risk. A less dramatic scenario would be a broad decrease in member’s compliance, as trust between producers is damaged by these growing divergences.