Oil: Summer Breakout set to gather steam at a fast clip – TDS

As the world begins to exit from the pandemic, the anatomy of a Great Rebalancing created a set-up for a sharp recovery in energy prices. The tensions within OPEC+ with no deal on boosting oil production continue to drive oil prices higher with the rift between Saudi Arabia and UAE increasing. According to Daniel Ghali, Commodity Strategist at TD Securities, the set-up for a summer breakout is forming.

OPEC stalemate fuels explosive summer breakout

“An overly cautious policy from OPEC+ has overwhelmingly driven the breakout higher in crude oil prices, more than offsetting concerns about mobility tied to a spreading Delta variant. Monday's stalemate for August production could lead to a significant overshoot in prices during this Summer Breakout.”

“While back-channel negotiations are likely to continue with consumer nations pressuring the UAE and Saudi Arabia, the stalemate suggests that current quotas will remain in place.”

“With no increase in production, the forthcoming growth in demand should see global energy markets tighten up at an even faster pace than anticipated. This comes at a time when the cost of capital for traditional swing production has likely permanently risen, which argues for energy supply risk driving prices higher. This impasse will lead to a temporary and significantly larger-than-anticipated deficit, which should fuel even higher prices for the time being.”