Remember those inflation worries?

'Investors are once again questioning the strength of the global recovery and mulling the threat of new Covid-19 variants and prospective central bank tightening -- in particular by the Federal Reserve.'

(ING) OPEC+ uncertainty has brought volatility to the oil market, with ICE Brent falling by more than 3% yesterday, and trading back below US$75/bbl.

The market appears to have come to the realization that if OPEC+ are unable to come to an agreement, it’s likely that output from the group will edge higher, and we would likely see the breakdown of the broader deal.

It is unrealistic to think that failing to agree on output levels from August onwards would mean that output remains unchanged, particularly when you consider that the reason there is a disagreement is that the UAE wants to increase its baseline if the deal is extended beyond April 2022, so basically they want to increase output.

There is still likely to be plenty of noise around what OPEC+ may do in the coming weeks, and so that means volatility is likely to remain

 So in the absence of a new agreement, Opec-plus production cuts will remain at the agreed July level of about 5.7 million barrels per day in August and beyond. #OOTT #opec— Amena Bakr (@Amena__Bakr) July 7, 2021 

As the current production agreement runs until the end of July, there is still time to reach an agreement for August and beyond.

1) OPEC+ come to an agreement in the coming days/weeks (before Aug 1). Oil production is increased as proposed and the deal is extended to December 2022. The production cut agreement would then be fully reversed by the end of 2022 and producers would then be producing at similar levels as before the April 2020 corona measures.

The oil price would fall. (50% probability)

2) OPEC+ sticks to the current July 2021 agreement. This further increases scarcity in the market as oil demand continues to pick up. The oil price rises and breaks through the long-term downward trend that started in 2008. The upside price potential would then be high (at least to USD 86-87/barrel = 100% retracement level and highest level in 2018). (20% probability)

3) There is no agreement and the OPEC+ cooperation is dissolved. Each country will, as in March 2020, again produce at its own discretion. Oil production will increase rapidly and oil prices will fall sharply. (30% probability)