Optimism around China easing its Covid-zero policy and continued policy support has seen the oil price rally for its third day.
According to China’s National Health Commission, the quarantine period for overseas travellers has been cut in half to 7-days from 14 days at a centralised facility upon arrival in mainland China.
However, overshadowing the sentiment is the news from OPEC+ that the group is more than half a billion barrels behind on its commitment to supply oil to the world, weighing on the already strained concerns about the group’s ability to balance the global market.
OPEC+’s compliance rate landed at 256 per cent in May, 2.7 million barrels a day below their collective target.
In May 2020, OPEC+ joined forces to coordinate production cuts aimed at re-balancing the global oil market. The group has pumped 562 million barrels less than levels in their agreement, according to its joint technical committee.
Not helping with the situation is the energy transition as companies are hesitant to invest in the sector which means the idea of more supply to clamp down prices at the pump is unlikely to unveil
Investment decisions look at the long term horizon for adequately getting a return on capital deployed. If there is no long term need, the reason for committing capital is weak.
It appears that OPEC+ is having difficulties increasing production with uncertainties looming around Libya, Iran and Russia’s reliability long term.Therefore this gives support to existing producers to perform well amid the shortage of new supply coming on board with renewables being far from filling the supply gap.
Shares in Woodside Energy (ASX:WDS) are up 0.9 per cent to $32.97, Beach Energy (ASX:BPT) has added 2 per cent to $1.80 and Santos (ASX:STO) is trading 0.4 per cent higher to $7.61.
Sources: Bloomberg, OPEC