How the group and non-OPEC producers respond to the rising deficit will determine how far crude oil can rise over the coming months. With no action the price of Brent crude oil could be on course to reach $80/b before yearend, but as always plenty of developments could scupper such a forecast. The most important being the prospect for additional barrels from either OPEC+ or Iran, should a nuclear deal be reached, and not least prolonged (or new) Covid-19 lockdowns, especially in Asia.
Since their last meeting the prospect for surging non-OPEC+ production has faded with oil companies, many now constrained by Wall Street investors demanding action to fight climate change, not rushing to increase production to chase rising prices. So far even drillers in the Permian, the prolific shale basin in Texas, have shown restraint in order to avoid the boom-and-bust cycles of the previous decade. With this in mind the group may be tempted through inaction to support even higher prices in order to receive strong paydays before demand eventual starts to taper in a few years’ time.
However, such a step would raise another challenge that OPEC+ needs to address. A prolonged period of inaction allowing oil prices to rise further, could see inflation, through higher fuel cost, become even more entrenched and prolonged, eventually curbing growth and with that demand for crude oil.
Taking all these consideration into account we do not see the price of oil being allowed to rise as far as $80/b, however having broken back above $70, the next line in the sand around $72 would determine whether Brent has got enough momentum to challenge the thirteen year downtrend from the 2008 peak, currently around $78. We would however view a move of this magnitude as an overshoot that eventually may prove to be short-lived.