OPEC + oil deal drives prices down, could be a buying opportunity

The price of oil fell by almost 1% on Monday morning during Asia hours after OPEC and its allies agreed to end oil production cuts.

Brent crude futures fell 0.88% to $ 72.94 a barrel, while US crude futures fell 0.97% to around $ 71.11 a barrel.

But having a deal is “better than no deal” for the organization of oil exporting countries and its allies – collectively known as OPEC +, according to one oil analyst who he said a continued stalemate could mean rising production and prices in free fall.

“I think they decided that having a deal was better than no deal,” Andy Lipow, chairman of Lipow Oil Associates told CNBC.

The group decided to increase production by 400,000 barrels per day on monthly from August, in how much moves for phase out production cuts of about 5.8 million barrels a day by September 2022. It comes when oil prices are close to theirs highest levels in more two years.

Negotiations to increase production previously in stall, after the UAE rejected the group’s proposal for the rollback of oil cuts. is left industry and investors in limbo as experts have warned that prices might hit the roof or collapsing without a deal.

“If they didn’t have a deal, they would be left to their devices and we might really see a free for all on increase production by all of their, in one moment in which return of demand yet remains in question, due to the delta variant, “Lipow told CNBC’s Street Signs Asia on Monday.

He was referring to the highly transmissible Covid variant that spread to more of 100 countries, prompting cases to record tall in several countries.

“This deal should give market participants comfort that the group it is not direct for a messy break and it won’t open up the doors of production in any time soon”said Helima Croft, head of global goods strategy at RBC Capital Markets.

Last year, to cope with inferior demand since the Covid crisis has damaged the economies and people couldn’t travel far, OPEC and its allies agreed to cut production by nearly 10 million barrels per day from May 2020 to April 2022.

“So the one what we do know is that OPEC + did not do it? want to see a return to prices last year in from 10 to 20 dollars a barrel range”Lipow said.

Prices have fallen to historic lows last year, like the impact of the pandemic has swept via out oil demand. West Texas Intermediate crude collapsed below zero for the first time, before recovering a over $ 10 per barrel a one point. Brent oil has fallen to a low of nearly two decades of almost $ 20 a barrel.

It could be a buying opportunity for investors, says Lipo.

The “silver lining” is that the pace that OPEC + is restoring oil production is even slower than the increase in global demand for oil, he said. that will be support prices in advance.

“Really, this is a buying opportunity for well over the next six months, since those inventories around the world continue to decline. Here in in the United States, we have reduced our crude oil stocks of 75 million barrels as of April 1, and this is indicative of what’s going on around the rest of the world. “

Lipow said oil prices could go down up at $ 78 a barrel for international Brent reference.

“I still think the that world must fight with a return of demand and this delta variant that we are seeing spreading in around the world. And that, of sure, it’s holding a shock absorber on prices, “he said.

Croft also warned that there may still be uncertainty as OPEC could reverse the 400,000 barrels per day increase.

“Like Saudi oil minister stated, the group can he pause, reverse or continue with the monthly increase of 400 kb / d based on key contingencies like Iran . e global The COVID case matters, “he wrote in a note on Sunday.

The US and Iran are renegotiating a 2015 nuclear deal, which could mean a comeback of Iranian oil al market.