Fundamental Updates – OPEC+ United Once Again (19 July 2021)
A compromised deal.
After a two-week stalemate in the discussion, the OPEC+ reconvened its meeting over the weekend. As part of a compromise, the oil-producing group has agreed for a raise in the production baseline for five members.
Oil production baseline increment in barrels-per-day (bpd)
Saudi Arabia: 500,000 bpd
Russia: 500,000 bpd
UAE: 332,000 bpd
Iraq: 150,000 bpd
Kuwait: 150,000 bpd
Although the baseline for the UAE has been raised, it falls short from the UAE’s initial request by 300,000 bpd. It was also revealed that Algeria and Nigeria have requested for an increase in their individual baselines.
With the issue of production baseline resolved, the OPEC+ had finalized a deal. Starting from August, there will be a hike in oil production by 400,000 bpd. Furthermore, the group has agreed to phase out the current 5.8 million bpd of oil production cut by September 2022.
Impact on oil prices.
Prior to this deal, the market believed that without a unanimous agreement, the OPEC+ will retain their current oil production quota. And since the OPEC+ is currently running on a supply deficit, the possibility of maintaining the current production quota led to the strengthening of oil prices. Now that the storm is over, a downward pressure has been placed on oil prices due to the increase in supply. This explains why oil prices started declining when the market kickstarted a new week earlier today.
Impact on the Canadian dollar.
As we know, there is a positive correlation between oil prices and the Canadian dollar (as oil prices rise, Canadian dollar tends to rise, vice-versa). In that sense, the Canadian dollar weakened as a result of the increase in oil supply by the OPEC+. This can be seen from the strengthening of USD/CAD and the weakening of CAD/JPY when the market opened earlier today.
After a two-week stalemate in the discussion, the OPEC+ reconvened its meeting over the weekend. As part of a compromise, the oil-producing group has agreed for a raise in the production baseline for five members.
Oil production baseline increment in barrels-per-day (bpd)
Saudi Arabia: 500,000 bpd
Russia: 500,000 bpd
UAE: 332,000 bpd
Iraq: 150,000 bpd
Kuwait: 150,000 bpd
Although the baseline for the UAE has been raised, it falls short from the UAE’s initial request by 300,000 bpd. It was also revealed that Algeria and Nigeria have requested for an increase in their individual baselines.
With the issue of production baseline resolved, the OPEC+ had finalized a deal. Starting from August, there will be a hike in oil production by 400,000 bpd. Furthermore, the group has agreed to phase out the current 5.8 million bpd of oil production cut by September 2022.
Impact on oil prices.
Prior to this deal, the market believed that without a unanimous agreement, the OPEC+ will retain their current oil production quota. And since the OPEC+ is currently running on a supply deficit, the possibility of maintaining the current production quota led to the strengthening of oil prices. Now that the storm is over, a downward pressure has been placed on oil prices due to the increase in supply. This explains why oil prices started declining when the market kickstarted a new week earlier today.
Impact on the Canadian dollar.
As we know, there is a positive correlation between oil prices and the Canadian dollar (as oil prices rise, Canadian dollar tends to rise, vice-versa). In that sense, the Canadian dollar weakened as a result of the increase in oil supply by the OPEC+. This can be seen from the strengthening of USD/CAD and the weakening of CAD/JPY when the market opened earlier today.