(22 JUNE 2018)DAILY MARKET BRIEF 1:Expect OPEC Production headline to stay overstated

Today in Vienna, OPEC and non-OPEC oil producers will discuss ramping up oil production. The stars seem to be aligned: discord with Iran has eased, while Russian and Saudi Arabia are supporting the move. Accordingly, the market reacted, as Brent and West Texas Intermediate (WTI) fell by -2.26% and -1.03% to USD 73.98 and USD 66.32 respectively. Year-to-date, Brent and WTI are up +11.09% and +9.84.

But we think the market has overreacted. Expectations of 1-1.5 million barrel/day increases are too optimistic. We expect effective increases to be more like 600’000 b/d. Spare capacity is thin, while Venezuela and Angola are crippled by economic instability and investment neglect of the last years. Therefore, Brent Crude and WTI downward moves are overstated, as demand from China and India remains strong.

By Vincent Mivelaz