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Brent is down 12% from peak on July 05 hit by concerns of Covid-19 slowing down demand recovery and Organization of the Petroleum Exporting Countries plus decision of monthly output hikes to fully unwind output cuts by September 2022.
Supply deficit of 0.7-0.8 million barrels per day is estimated in Q3-Q4 CY21E, which should support oil price.
However, if OPEC+ hikes continue after December 2021, supply surplus is likely; in fact, cut is needed to ensure supply deficit in CY22E.
OPEC+ is aware of this and is ready not only to stop output hikes but to even make cuts to ensure demand-supply balance in CY22E as Saudi Arabia’s energy minister indicated; in H1 CY21 as Covid-19 surge hit demand, steeper OPEC+ cuts than agreed ensured supply deficit and drove surge in oil.
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