The oil market got mixed news last week with words of cautious optimism coming from leading producers and downright dismal jobs figures from the USA.
Early September is the official close of vacation time and the driving season with everyone preparing for the final quarter of the year.
Brent crude was priced above US$72 a barrel with West Texas Intermediate (WTI) still holding below US$70 a barrel.
Virtual gathering
OPEC and friends gathered virtually last week and decided to add more oil back to the market as planned.
An additional 400,000 barrels a day of production will be re-introduced till the end of the year, with ministers carefully watching demand and supply on a monthly basis.
For the time being, the group decided that fundamentals were strong enough to handle more oil on the market.
"While the effects of the COVID-19 pandemic continue to cast some uncertainty, market fundamentals have strengthened and OECD stocks continue to fall as the recovery accelerates."
Many analysts fear that demand may not be robust enough in months to come, but the producing group say they will continue to monitor the situation.
OPEC’s Joint Technical Committee met early in the week to present its findings and the data indicates that world oil inventories are on the decline.
Danger of surplus
This is good news right now, but with sustained additional barrels on the way back, there’s a danger that the market will experience a surplus later in the year with inventories growing by less than a million barrels a day.
Sanction talks on Iran could also have an impact, depending on the outcome if they get back on track. The gradual return of oil to the market is being staggered to suit demand and to hopefully return the 9.7 million barrels a day that was taken off when demand dropped at the height of the pandemic.
The US has been pressuring OPEC to add more oil to the market in an effort to reduce the retail price for American consumers.
OPEC has always been careful about maintaining a balance and the group pays great attention to the data and the analysis. Looking at this week’s economic data from the US, recovery is not as buoyant as expected with an unemployment rate of about 7.5%.
Slow improvement
While the economy is slowly improving from a low base, the president of Prestige Economics, Jason Schenker says "jobless claims continue to reflect more weakness in the labour market".
The weakness in the economy reflects less need for any interest rate adjustment and Schenker adds that "crude oil may also feel some pressure, due to the implications of stalled hospitality and leisure in the face of the COVID Delta variant".
The oil market needs micro managing in the weeks and months ahead as uncertainty rules the day.
Oil producers know what needs to be done and careful monitoring of demand and supply as the global economy continues to recover will be essential.