Saudi Arabia: Oil prices rise in July on the back of improving demand prospects and tighter supply
Oil prices increased robustly at the tail end of July, predominately due to falling inventories in the U.S. and a healthier demand outlook as progress on the vaccination front outweighed risks related to the most recent rise in new Covid-19 cases globally. On 30 July, the OPEC oil basket traded at USD 74.4 per barrel, up 1.1% from the prior month. Meanwhile, the price was 48.1% higher on a year-to-date basis and was 73.1% higher than on the same day last year.
The ongoing global vaccine rollout and recovering economic activity continued to support oil demand prospects over the past month. Moreover, U.S. crude oil supplies fell to the lowest level since January 2020 in late July, also bolstering prices. Tight supplies and recovering activity more than offset OPEC+’s recent decision to continue to ease output cuts in September and the recent rise in new Covid-19 cases—which spooked oil markets at the beginning of July.
In terms of OPEC production, combined crude oil output among members increased from May’s 25.4 million barrels per day (mbpd) to 26.0 mbpd in June—the latest month for which data is available. This mostly reflected higher output in Saudi Arabia, which increased to 8.9 mbpd in June from 8.5 mbpd in the previous month.
That being said, our panelists expect Saudi oil output to average lower in 2021 relative to last year due to its commitment to bolster crude oil prices.
Commenting on the outlook for global oil prices with regards to OPEC+’s latest meeting in mid-July, Edward Bell, senior director at Emirates NBD, noted:
“A production increase from OPEC+ from September onward would largely fall in line with our projections of a market deficit of around 1.3-1.5m b/d and prices held in a USD 70-75/b range for the rest of 2021. As such, we see no immediate need to revise our oil prices or balances at this time. However, with the deal being extended until the end of 2022 the risks for oil prices in H2 2022 now look more skewed to the upside. We expect the objective in extending the deal until the end of next is for OPEC+ to provide some reassurance to markets that the producers’ bloc won’t let balances grow out of control once the initial terms of the deal expired in April 2022 amid a still uncertain outlook for demand and non-OPEC+ supply.”