OPEC likely to confirm production target at 30m bpd

OPEC members are gathering for their scheduled semi-annual meeting today. Like the great majority of market participants, we expect OPEC to confirm its production target of 30 million barrels per day once again. After all, oil prices have recovered significantly and US shale oil production has stopped increasing so rapidly. In fact, the sharp decrease in drilling activity should mean that it actually falls in the next few months. 

Oil prices came under pressure in the days ahead of the OPEC meeting because there was speculation that OPEC might even increase its production target. Analysts believe this is unlikely, so oil prices should recoup these losses assuming that the production target is not raised. This is because the focus would then shift back to the usual price determinants, and indications of demand in particular have tended to have more of a bullish effect of late, says Commerzbank. 

Saudi Arabia has increased its official selling price (OSP) for July in Asia. The 60 US cents per barrel discount on Arab Light as compared to the Oman/Dubai benchmark was reduced to zero, which points to high Asian demand. And for another thing, the renewed decline in US crude oil stocks confirms the robust US demand. Although US gasoline demand was no longer as exorbitantly high as it was in the previous week, the four-week average figure nonetheless remains a good 1% up on last year. If the three energy agencies were to upwardly revise their demand forecasts next week, this could lend support to the price recovery. That said, the considerable oversupply will preclude any noticeable increase in price above $65 per barrel, notes Commerzbank.