[Editor’s note: This report is an excerpt from the Stratas Advisors weekly Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.]

The price of Brent crude ended last week at $73.30 after closing the previous week at $75.58. The price of WTI ended last week at $71.65 after closing the previous week at $74.63. The price of WTI fell at a greater amount than Brent because the price of WTI has been propped up by more bullish trading sentiment than the price of Brent crude. The price of Brent crude has now dropped below that upward trend that has been in place since the beginning of December 2020. The next key support level is around $70.00.

From a global perspective the big news (as we expected) is that OPEC+ finally came to agreement on July 18 to continue to increase supplies through the rest of this year and through the second half of 2022. The deal includes increased production of 400,000 bbl/d per month, which will essentially reduce the agreed cuts to zero in fourth-quarter 2022. The deal also includes adjustments to the production baseline that total of 1.63 million bbl/d with the United Arab Emirate’s baseline increasing by 332,000 bbl/d, and Saudi Arabia and Russia’s baselines each increasing by 500,000 bbl/d. The level of proposed increases by OPEC+ is slightly greater than our current forecast, and further indication that OPEC+ expects that U.S. production increases will remain muted. We are currently forecasting that U.S. production will increase, on average, by 340,000 bbl/d during the second half of this year, and by another 860,000 bbl/d during 2022. However, U.S. production will still be around 700,000 bbl/d less than pre-COVID levels.

As we highlighted last week, global cases of COVID-19 started increasing during the week of June 21—and the cases continue to increase. During the last 14 days, cases in the U.S. have increased by 135%, while hospitalizations have increased by 32% and deaths by 27%. While all the categories are still very low compared to any other time of the pandemic, the increases are a concern because the increases are following a similar pattern of last year, coupled with the slowdown in the rate of vaccinations (which has dropped to around 550,000 per day—from the peak of 3.3 million per day—and with only 59% of U.S. adults fully vaccinated), and the emergence of the Delta variant. From a global perspective the number of daily cases has increased 503,620 from 358,989 during the week of June 21. In comparison, the number of cases reported one year ago was only 234,418. On a more positive note, the number of deaths has declined from 8,739 to 8,199 during the last 14 days.

One country that warrants watching is Israel because of its extensive vaccination program, which is based on the Pfizer vaccine. In the last 14 days, the number of cases has increased by 183% and reached 1,118 cases on July 16, which is the highest level in four months. Furthermore, the reproductive rate is 1.37, which means that COVID-19 is spreading again. However, the number of serious cases has lagged with only 58 serious cases. The percent of cases that turn critically ill is now 1.6%, compared to 4% at a similar stage when there were no vaccines. More troubling is that 60% of the patients in serious conditions have been vaccinated. As such, it would appear that there is the real potential for another wave, but at a lower level and with a lower level of serious cases.

What Is Affecting Oil Prices The Week Of July 19 2021 Stratas Advisors Infographic

About the Author:

John E. Paise, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.