The Commodities Feed: Demand concerns & OPEC+ uncertainty

Energy

Oil prices came under some pressure yesterday, with Brent down as much as 1.75% at one stage. However, the market managed to claw back a lot of these losses, finishing the day around 0.5% lower. While there is uncertainty over OPEC+, there are also concerns over demand, given the growing number of Covid-19 cases in several regions as the Delta variant spreads. In Asia, where vaccination rates remain relatively low, we are seeing more governments tightening restrictions in a bid to slow the spread. The market has held an optimistic view on the demand recovery, but clearly, there are some very real risks that the recovery will not be as quick as many in the market had anticipated.

The EIA yesterday released its latest Drilling Productivity Report, in which they forecast that US shale oil production will increase by 42Mbbls/d in August to average 7.91MMbbs/d. In addition, EIA data also showed that the number of drilled but uncompleted wells (DUCs) fell by 269 over June to 6,252- the lowest number since June 2018. Over the last year, US producers have reduced the number of DUCs by 2,713, as we have seen a pick up in the completion of wells. The higher oil price environment suggests that well completions should continue to increase, which should continue to see DUCs edging lower.

Finally, the IEA will be releasing its monthly oil market report later today, in which they will share their outlook for the market for the remainder of this year and 2022. The report will be of interest to the market, particularly given the spread of the Delta variant, along with the OPEC+ fallout. In its last report, the IEA estimated that oil demand would grow by 5.4MMbbls/d this year and 3.1MMbbls/d in 2022. Further mobility restrictions in parts of Asia over the last month leaves the potential for a downward revision in 2021 demand estimates.