Opec-Plus Weighs Delta Variant Concerns

Concerns about the Delta variant of the coronavirus tempered favorable news about the state of the oil market at a meeting of Opec-plus technical officials on Tuesday. Representatives of Iraq and Algeria called for caution as the alliance deliberates whether or not it should implement a further increase in its oil production in the second half of this year, according to delegates who attended the meeting. Tuesday's gathering of the Joint Technical Committee (JTC) was held in preparation for a meeting of Opec-plus ministers on Thursday to set the alliance's production policy for August and beyond. Oil prices have recently risen to the mid-$70s amid expectations of a further recovery in oil demand in the second half of this year. That had led to expectations that the group would agree on a further gradual increase in its output this week. However, the Iraqi and Algerian representatives warned that such a move might cause a supply overhang that could endure into early 2022. Risk Aversion The emergence of the highly infectious Delta variant has led to a new surge of Covid-19 infections around the world, countering some of the recent optimistic thinking that the pandemic might finally be waning. Some Opec-plus members appear to be happy with current prices in the $70s after last year's price slump, and this might be making them reluctant to take a risk by raising output again (IOD Jun.28'21). The alliance -- led by Saudi Arabia and Russia -- is close to wrapping up a gradual increase of 2.1 million barrels per day in its combined production in May-July. That will leave cuts of around 5.7 million b/d in place by the end of July -- down from almost 10 million b/d in May of last year, when Opec-plus launched its massive effort to support oil prices as demand collapsed because of the pandemic. Delegates had previously told Energy Intelligence that Russia in particular was advocating a further increase in output, although some of those who attended Tuesday's meeting said the Russian representative remained mostly quiet. Earlier on Tuesday, Kremlin spokesman Dmitry Peskov said there were no plans for Russian President Vladimir Putin and Saudi Arabia's leadership to discuss Opec-plus matters this week. Covid Wild Card During Tuesday's JTC meeting, Opec Secretary-General Mohammed Barkindo said the Delta variant had become a "wild card" for the oil market, driving up Covid-19 infections and leading to new restrictions on travel and mobility. "To date, it has reached more than 80 countries and has shown evidence of having higher transmissibility versus earlier strains of the virus," he said. Barkindo added that preliminary data for May 2021 showed total OECD commercial oil stocks rising by 9.9 million barrels from April, but down 275 million bbl lower from a year ago and 20 million bbl below the 2015-19 average. "We are pleased to see the steady reduction in inventories," he said, noting that inventories had reached alarming levels at the height of the pandemic last year. Meanwhile, Opec's base case forecast still indicates that global oil demand will be nearly 5 million b/d higher in the second half of 2021 than in the first half of the year, he added. "This is a significant increase, even if uncertainties and associated risks would be factored in," he said. An additional source of uncertainty for the oil market is the possibility that the US and Iran could reach an agreement that leads to the lifting of US sanctions and a surge in Iran's oil production and exports (IOD Jun.28'21). Amena Bakr, Dubai, and Nelli Sharushkina, Moscow