Oil Markets in Limbo as Crude Oil Futures Dip after Hitting 6-Year-High

Oil prices jumped to the highest in years after OPEC+ abandoned talks to discuss liftin outputs. Where West Texas Intermediate (WTI) hit its 2014 peak earlier Brent Crude prices rallied to above $77 a barrel. The 6-year-high crude oil prices did witness a slight dip, thereby leading to more uncertainty and price volatility.

Regardless of the dip in price, the price surge has added to concerns that inflationary pressures may derail a global economic recovery.

Asia is Saudi Arabia’s main market and the latter has raised oil prices in the region. According to reports, Saudi Aramco has raised the starting price of its crude oil benchmark by 80 cents per barrel to US$2.70. That’s a hike of more than 40% and the biggest monthly rise since January. It suggests that the oil giant won’t raise supply next month even as it sees the market Tightening.

On Monday the OPEC+ talks were canceled after a clash between top producers Saudi Arabia and the United Arab Emirates. Saudi Arabia wants to maintain output curbs while the UAE is pushing for higher production. In the past week, the alliance failed to reach an agreement twice. The date of the next meeting has not yet been determined, which puts the oil market in limbo.

There is fear amongst markets that what if the oil cartel does not reach any sort of consensus. However, the expectation right now is that they will likely be some sort of an agreement. The oil market right now is taking a bit of a pause, it is obviously down about 2-3%. Overall the oil prices are sitting at 6-year highs. The expectation for gasoline prices and oil prices continues to remain buoyed. Even if there is a short-term pause that is occurring right not due to a lack of formal agreement that’s crystalized within OPEC there’s still room to the upside on oil prices.

The technical factors still continue to support more room for the upside. The analysts’ consensus price targets for the year-end remain strong oil prices. As the US is just a couple of weeks out of the quarterly earnings period a lot of market participants have their eyes open. The market participants are going to be closely watching what US producers, major oil field service companies are going to be indicating. This would be in terms of what they are seeing from the customer base from operatives. Additionally, whether or not they will be discussing possibilities of ramping production in light of economic actives.

The economy continues to rebound from the covid-19 related pandemic. Given economic activity continues to improve within the US and overseas there’s going to be a delicate balance between US operators and OPEC ramping production. The production would have to ramp up in the event that the economy falls further into a supply deficit.