OPEC related volatility to be short lived as group seen agreeing on production increase

The current disagreement between Saudi Arabia and the UAE is not yet an existential threat for continued OPEC+ collaboration in the short run, nor a signal of imminent UAE withdrawal from the agreemen t. In our base case, we maintain our forecast from our previously price update , expecting OPEC+ to ultimately agree to the production unwind discussed last week (2mn b/d unwound over five months). T he most likely outcome sees Saudi Arabia and the UAE essentially coalescing on what they agree on (the need to increase supply in the short term ) with the production ramp up separated from the issue of an extension to the agreement, for now. Punting the decision on a deal extension admittedly kicks the can down the road. However, by this point, OPEC+ will have far greater clarity on several uncertain aspects of the balance, including the likely trajectory of Iranian supply and the impact of the delta variant on oil consumption over winter. Committing to a spare capacity unwind now will also act as an investment signal to US tight oil producer s, limiting the likelihood of a damaging price spike in 2022.