Karachi, July 07, 2021 (PPI-OT): Oil prices reach 3-year high on OPEC+ disagreements

International oil prices reached a 3-year high this week, with WTI touching US$76.4/bbl. The key reason cited for the spike is the third consecutive failed attempt for resolving the impasse between UAE and the rest OPEC+ members over oil output decision for Aug-2021 onward, while global oil demand continues to increase on opening of world economies.

While OPEC+ members have proposed to increase oil output by 400k bbl/day each month from Aug-2021 to Dec-2022, UAE has been firm on increasing its existing market share as increased outputs were reportedly being measured on a lower base for UAE. To recall, OPEC+ members had agreed to cut oil output by ~10mn bbls/day in 2020 (~10% of global output) due to the pandemic.

The three failed OPEC+ meetings have reportedly raised the probability of the oil cartel breaking, leading to increase in global oil supply. Moreover, developments on easing of Iran sanctions can also boost oil supply in the global market as the country with the fourth largest oil reserves carries oil inventory of 60mn bbls at the moment.

International oil prices are likely to nosedive in both scenarios mentioned above and would bode well for oil importing countries including Pakistan. Lower oil prices would give the government some breathing space, allowing it the leeway to increase Petroleum Levy to meet the tax collection target without further burdening the masses. That said, till a stalemate stands on the OPEC+ front, international oil prices are likely to remain on the higher side.