With the Organization of the Petroleum Exporting Countries set to meet Thursday, many expect an increase in oil supply to be on the docket. That could make crude prices, which have stalled recently, drop.
Oil has had a fantastic 2021. WTI Crude, the U.S. benchmark, has gained 50% this year after rising 0.1% to $72.98 on Tuesday, while the Energy Select Sector SPDR ETF (XLE) has returned 44% including reinvested dividends.
Now OPEC is set to meet—and some see an increase in the supply of oil as the most likely outcome. The cartel is considering boosting production by 500,000 barrels a day, according to a Wall Street Journal report, while analysts at RBC Capital Markets expect OPEC to boost output by between 500,000 and 1 million barrels a day beginning in August.
Last year, OPEC was cutting production, as oil demand plummeted in the face of the pandemic. OPEC was producing almost 10 million barrels a day in May 2020, though that number fell to 6 million by the end of the year. Now, demand for oil is snapping back quickly, as the economy rebounds, which has been driven by economic stimulus and reopenings. OPEC may be in the midst of shifting its tone to increasing supply as demand comes back. “We think they will opt to continue the process of gradually adding back barrels to the market,” Croft writes. “We believe they will answer the call to put more barrels on the market.”
More supply could put a dent in the price of oil. While oil has had a great year, it’s recently gotten stuck just below its 52-week high of $74.05, reached on June 25. For over a week, the price has been hovering around $73. “We are seeing some profit taking in oil so far this week,” writes Tom Essaye, founder of Sevens Report Research.
The question is how much profit taking there will be after the OPEC meeting.