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James Hyerczyk
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WTI and Brent Crude OIl

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Monday, but clawing back some of its earlier losses. Sellers are responding to the news that OPEC and its allies reached an agreement to raise its output levels. While some traders are expressing concerns about a crude surplus because of the decision, others are worried that demand could decline at the same time because of the rise in COVID-19 infections.

At 08:08 GMT, September WTI crude oil futures are trading $70.57, down $0.99 or -1.38% and September Brent crude oil is at $72.32, down $1.27 or -1.73%.

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OPEC+ Agrees to Oil Supply Boost after UAE, Saudi Reach Compromise

Reuters is reporting that OPEC+ ministers agreed on Sunday to boost oil supply from August to cool prices which have climbed to 2-1/2 year highs as the global economy recovers from the coronavirus pandemic.

The group crucially agreed to new production allocations from May 2022 after Saudi Arabia and others agreed to a request from the United Arab Emirates (UAE) that had threatened the plan.

“We are happy with the deal,” UAE’s Energy Minister Suhail bin Mohammed al-Mazroui told a news conference. Saudi energy minister Prince Abdulaziz bin Salman declined to answer questions on how the compromise was reached.

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Details of OPEC+’s New Plan to Boost Production

From August until December 2021 the group will increase supply by a further 2 million bpd or 0.4 million bpd a month, OPEC said in a statement. It aims to fully phase out cuts by around September 2022, Reuters wrote.

To overcome a July 1 disagreement that led to members walking away from their regular monthly meeting, OPEC+ agreed new output quotas for several members from May 2022, including the UAE, Saudi Arabia, Russia, Kuwait and Iraq.

The UAE will see its baseline production, from which cuts are being calculated, increase to 3.5 million bpd from May 2022 from today’s 3.168 million.

Saudi and Russia will see their baselines rise to 11.5 million bpd each from the current 11 million. Iraq and Kuwait will see their baselines rise by 150,999 bpd each.

Price Abdulaziz said Nigeria and Algeria could also see their baselines revised. He said OPEC+ would adjust its policy if and when Iranian oil returned to the market if the country reached a deal with world powers over its nuclear program.

Iran is estimated to be able to add some 1.5 million bpd to global supply once the deal is reached and Western sanctions are lifted.

Daily Forecast

With the OPEC+ output hikes out of the way, traders are likely to shift some of their focus back to demand due to the surge in COVID-19 cases around the world. Prices could break further over the near-term if demand falls at the same time supply is increasing. Sellers could start to gain control if reports start to show a slowing global economy.

Reuters wrote that global economic growth is beginning to show signs of fatigue while many countries, particularly in Asia, are struggling to curb the highly contagious Delta variant of the coronavirus and have been forced into some form of lockdown.

Meanwhile, economists at Bank of America have downgraded their forecasts for U.S. economic growth to 6.5% this year, from 7% previously, but maintained their 5.5% forecast for next year.

Crude oil traders will be watching to see if other economists start to lower their forecasts for U.S. growth. The market will have a hard time rallying through July’s high if growth declines.

For a look at all of today’s economic events, check out our economic calendar.
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