OPEC elasticity offsets supply risks and uneven demand

Significance

Crude inventories have fallen mildly in the second half of 2021, but the modest demand recovery obliges producers to practise restraint. Quota compliance is a concern for OPEC+, as is US shale output, which has fallen but could revive if prices exceed USD50 per barrel.

Impacts

• If the oil demand recovery is weaker than expected, especially in the West, it would pivot OPEC+ talks to continuing current supply cuts.
• A breakdown in OPEC+ cooperation is unlikely given the common interest in stable prices, but more hawkish members may have to compromise.
• Vaccine trial success led investors to sell tech and buy travel stocks, but commuter and business travel patterns may change permanently.