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Oil prices continue to gain despite OPEC+ production increases

We identify key catalysts and themes currently in play for oil, assessing whether recent US Iran discussions and OPEC+ supply increases will eventually weigh on prices.

Oil barrel Source: Bloomberg

The oil price outlook

Brent crude and WTI prices have now doubled since the lows realised in early November 2020.

Inventory declining and recovering economy support demand

A continued decline in global oil inventories highlights an economy recovering and in turn demands for a crude increase. Larger fiscal support from major economies and the Covid-19 vaccine rollout which is now well underway are supporting growth across the world.

The International Monetary Fund (IMF) now expects global economic growth of 6% in 2021. The Organisation of the Petroleum Exporting Countries (OPEC), in its latest report (10 June 2021), has forecast global growth of 5.5% this year and an increase in oil demand of around 6.6% or 5.95 million barrels per day (bpd).

While oil demand is expected to rise in the second half of the year, this demand could slow into 2022 as the rate of growth is forecast at a slower pace.

OPEC+ to gradually increase supply

OPEC along with Russia and other non-member allies (OPEC+) have agreed to unwind current supply curbs in place but only at a gradual pace. The slow unwinding of production restrictions comes as demand for the commodity is now expected to increase at a faster pace in the second half of 2021.

OPEC+ have slowly been increasing production since May, with the unwinding of supply curbs expected to continue until July this year. Output has increased to 25.46 million bpd with expectations (by OPEC) that 27.7 million bdp will be needed to be supplied.

The gradual increase in supply is expected to be outpaced by the increase in demand in 2021, although this could dissipate into 2022.

The ‘Iran nuclear deal’ and suggested implications for oil

Under the Trump administration in May 2018, the US withdrew from the Iran nuclear deal, more formally known as the Joint Comprehensive Plan of Action (JCPOA). The JCPOA is an agreement between Iran and countries China, France, Germany and the United Kingdom, that Iran’s nuclear programme would follow peaceful protocol, ensuring that levels of uranium enrichment and inventory were lowered.

Along with the US withdrawal from the agreement came a whole host of sanctions which more than three years later, continue to restrict oil exports from the region.

The US, under the Biden administration, has now been revisiting talks about the JCPOA and inclusion thereto once again. Markets have in part assumed that successful outcomes to talks could see the lifting of Iranian sanctions and in turn a significant increase in oil supplies to the world once again. The National Iranian Oil Company has already suggested that if allowed production levels could return to full capacity with one month.

However, the US secretary of state, Anthony Blinken, has been quoted as saying that even with successful outcomes to conversations underway, ‘hundreds of sanctions would remain in place’. If sanctions were to be lifted, this would also imply exports would need to abide by OPEC+ export agreements as well, which as we know, has a primary interest in controlling levels of output. Therefore, the assumption that a positive conclusion to the Iran nuclear deal would result in a flood of oil could be misguided.

Brent crude: technical analysis

Brent crude has now traded through the upside range resistance at 7110. The move suggests an upside breakout, although the small-bodied candles suggest this to be a tentative break rather than one with great conviction.

Brent crude chart Source: IG chart
Brent crude chart Source: IG chart

The dotted red trend line provides an upside resistance target from the move at 74.30. Traders looking for long positions might do so somewhere between current and the 69.75 levels. Should the price instead move to close below the 66.95 support level, the upside breakout would be deemed to have failed.


  • Oil prices have more than doubled since the lows in November 2020
  • Demand for oil is expected to increase in the second half of 2021 as the economic recovery gains traction
  • OPEC+ continue to manage global supply through a gradual unwind of output curbs
  • Growth for oil demand in 2021 is expected to outpace increases in production
  • Increased supply and a decelerated rate of economic growth in 2022 could weigh on prices, in the long term
  • The US inclusion in the Iran nuclear deal, if successful could still see sanctions remain and might not equate to increased oil supply
  • The price of Brent crude oil has recently produced an upside breakout, with resistance now considered at the 74.30 level

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OPEC meeting

Your guide to how OPEC affects oil prices ahead of its next meeting on 5 December 2019.

  • What was decided at the last OPEC meeting?
  • Why do OPEC members agree to oil quotas?
  • Which countries are members of OPEC?

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