Oil Prices Anticipate Higher Production

Oil prices are sending mixed signals about the production-consumption balance in the second half of 2021 and early 2022, implying the market is currently tight but likely to see significantly more output in the near future.
In the physical market, Brent’s five-week calendar spread is trading around $1.50 per barrel, which puts it in the 93rd percentile for all trading days since 2010, confirming the market is currently short of crude, Reuters reported.
In futures, Brent’s six-month spread is around $3.70 per barrel, also in the 93rd percentile for all trading days since 1990, signaling traders expect inventories to remain below average.
But front-month futures prices have risen less than 10% over the last two months, implying traders anticipate substantially more crude could be made available to the market without much further increase.
The current mix of flat prices and spreads is consistent with the view OPEC+ will increase production significantly in the remainder of 2021 and early 2022 to satisfy increasing demand while keeping stocks relatively low.
Earlier this month, OPEC+ members agreed in principle to raise output by 2 million barrels per day between August and December, though a final decision was blocked by disputes over production levels after April 2022.