PRIMER: OPEC's JMMC meeting 30th June followed by the OPEC+ confab on the 1st July (timing TBC).

Analysis details (09:38)

OVERVIEW: The JMMC meeting on the 30th of June will be followed by the OPEC+ confab on the 1st of July, where production quotas will be set for at least August. Sources suggested the group is mulling a further easing of curbs, although the specifics have not yet been ironed out – with analyst forecasts ranging from 100k BPD to 1mln BPD of oil returning to the market in August. A total of some 2.2mln BPD of OPEC oil (barring Iran, Libya, and Venezuela) is set to return to the market under the May-July quotas (set in April), including Saudi’s 1mln BPD voluntary cut. Russia has argued that markets can absorb more OPEC+ supply amid an expected deficit. OPEC+’s latest forecasts point to the group’s supply falling short of demand by 1.5mln BPD (assuming current output levels are maintained), with the shortfall seen widening to 2.2mln BPD in Q4. As usual, the group will likely test the waters and skew expectations via sources heading into the meeting.

MOVING PARTS:

-          SUMMER DEMAND: The group expected demand to pick up pace in H2 2021, as per the June MOMR, which forecasts H2 demand at 99mln BPD vs 94.1mln BPD in H1. “With improving mobility in major economies supporting gasoline and on-road diesel demand. Improvements in pandemic containment efforts and seasonal summer demand will allow for positive expectations for 2H21”. The monthly report also suggested that refiners in APAC and Europe showed higher buying interests on the expectation of further recovery of oil demand in the approach of the summer driving season, whilst in the US, “the continued recovery in refinery runs and declining crude stock lent support to prices.” Furthermore, EnergyIntel recently noted that “so far demand scenarios look good and there might be a need to ease the cuts”

-          COVID VARIANTS: The emergence of more resilient, and transmissible variants remains a persistent risk. The spread of the Delta variant has prompted economies such as the UK to delay its full reopening, whilst some regions in APAC alongside several Australian cities recently re-entered lockdown – Eurozone economies have warned that the Delta variant is gaining traction in the region. Furthermore, the spread of the highly contagious variant has kept a lid on international travel and thus impacting jet fuel demand. However, at this point, ministers seem less worried about the knock-on effects from variants as the vaccination drives continue at pace.

-          IRANIAN OIL: Iranian nuclear talks continue to drag on longer than expected due to outstanding sticking points – although desks and ministers have suggested that this output can be absorbed, with the country also exempt from OPEC quotas in light of US sanctions. Iran’s May output stood at around 2.5mln BPD vs around 3.8mln BPD in 2018, pre-US sanctions. This would suggest the addition of 1.3mln BPD of Iranian oil over the next few months – assuming a deal is struck between Tehran and Washington.

-          US SUPPLY: In terms of competing US supply, OPEC+ officials reportedly heard from industry experts that US output growth will likely remain limited this year, according to sources, before a potential sharp rise next year. This gives OPEC+ giving it more power to manage the market in the short term.

HOUSE VIEWS:

ANZ, ING and S&P Global Platts all expect August quotas to increase by 500k BPD, whilst RBC Capital Markets forecasts OPEC+ to boost output by 500k-1mln BPD at the July 1st meeting. On the other side of the spectrum, Rystad Energy has called on OPEC+ to take a more cautious approach and opt for a production increase of 100-200k BPD in August – citing a jagged path of recovery and fragile demand.

29 Jun 2021 - 09:37- EnergyResearch Sheet- Source: Newsquawk