Saudi Arabia: Oil prices continue to trend higher in June–July on the back of recovering global economic activity
July 2, 2021
Oil prices increased in recent weeks as the ongoing easing of social distancing measures boosted demand prospects, with activity in the tourism and hospitality sectors picking up somewhat. On 2 July, the OPEC oil basket traded at USD 74.8 per barrel, up 7.9% from the prior month. Meanwhile, the price was 49.0% higher on a year-to-date basis and was 74.5% higher than on the same day last year.
Solid progress on the vaccination front, particularly in Europe and North America, has facilitated the further easing of restrictions over the past month, supporting oil demand prospects in turn. Moreover, the U.S. summer driving season, coupled with a slight bounce-back in air travel, should have aided the recovery in fuel demand, also bolstering crude oil prices. However, the recent increase in Covid-19 cases in some parts of Asia and new variants of the virus spreading to Europe likely weighed on sentiment in the oil market in late June and early July.
In terms of OPEC production, combined crude oil output among members increased from April’s 25.1 million barrels per day (mbpd) to 25.5 mbpd in May—the latest month for which data is available. This mostly reflected higher output in Saudi Arabia, which increased to 8.5 mbpd in May from 8.1 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, Edward Bell, senior director at Emirates NBD, noted:
“Considering how high oil prices have reached mid-way through 2021, we would expect internal debate among OPEC+ members to increase in fervor. Some members may argue there is an opportunity for a moderate increase of 500-750k b/d of production for August onward. That wouldn’t push oil markets into surplus but could help to slow the current momentum in the oil price rally. […] We will monitor the outcome of the OPEC+ meeting and adjust our oil market balances accordingly based on the outcome. For now, we maintain our view that oil prices will stay elevated with Brent futures at an average of USD 70/b in Q3 and Q4.”
Author: Steven Burke, Economist