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OPEC+ meeting, US-Iran talks, demand recovery to decide crude oil prices

NYMEX futures prices may vary from $68 to $57 a barrel and a break, on any of the sides, will suggest a fresh direction to the commodity.

May 31, 2021 / 02:32 PM IST
Image: Reuters

Image: Reuters

Oil futures have been trading in a tight range in global markets for the last three months. Concerns over the pace and efficacy of vaccines, worries over the return of Iranian oil and the second wave of the coronavirus pandemic in emerging markets have influenced the commodity.

Though there are several factors that affect the price of oil, supply-demand dynamics remain the most influential one. Earlier, oil demand plummeted due to weak industrial activity and travel restrictions around the globe but prices regained the momentum later.

In the past year, US WTI and Brent crude prices have almost doubled. The broad-based economic recovery amid widening vaccination rollouts increased the demand.

The supply glut due to demand shortage has been offset by the coordinated effort of OPEC+ countries. The producers' cartel agreed to a historic output cut in April 2020. This was to reduce the excess supply and shore up prices.

The group's compliance with the reduction in output was extremely high and balanced the oversupplied market. There are hopes that OPEC+ may bring back 2.1 million barrels a day of oil production from July by lowering the daily output cut.

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Iran, the world's fourth-largest producer of crude, has been facing US sanctions since the 2015 nuclear deal. These sanctions have been restricting the country from exporting oil. However, since April, Iran and world powers have been in talks about reviving the deal. These talks are being tracked by market players because if the sanctions are lifted, Tehran may pump more oil into the global market.

Iran can add about one to two million barrels per day to the global oil market if the deal is struck. Anyhow, there are expectations that the growing evidence of the rebound in demand and a shortfall in shale gas production in the US is likely to absorb the possible extra barrels from Iran.

Many agencies like S&P Global Platts and Goldman Sachs forecast a steady outlook for oil for the rest of this year due to accelerated vaccination and lifting of lockdowns.

Investors may also bet on increased demand from the US as the country has almost recovered from COVID-19 ahead of the summer driving season. The number of infections in the US, Europe and China continue to fall, which has led to the easing of travel restrictions.

A drop in COVID-19 cases in India, the world's third-largest importer of oil, too, may lead to the easing of restrictions gradually, which may boost demand later.

Global oil markets are now balanced but the dynamics may change soon, as the markets are heading towards crucial events like the OPEC+ meeting scheduled for June 1 and the key US-Iran nuclear deal talks. US production numbers and the pace of global economic recovery will also influence the short-term price outlook of the commodity.

On the price front, NYMEX futures prices may vary in the $68-57 range a barrel initially, and a break of any side will suggest a fresh direction. A rise above $68 can see crude move towards $75 followed by $82 or more later.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.



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Hareesh V is the Head of Commodity Research at Geojit Financial Services.
first published: May 31, 2021 02:32 pm
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