Commodities: OPEC+ tensions generate oil price volatility
After cancelling the meeting in early July, the members of OPEC+ were finally able to reach a compromise. A monthly production increase of 400,000 barrels per day from August to December was agreed. There were tensions over the demands of the United Arab Emirates to increase the base production level. In the end, an agreement was reached that the UAE could join Saudi Arabia, Russia, Kuwait and Iraq in producing an additional 1.6 million barrels from May 2022. Following an initial move higher (to USD 77 in early July) due to the failure to reach an agreement on additional production from August, the price of brent oil fell back below USD 70 per barrel when the agreement was struck. The oil price subsequently recovered again.
After brief weakness in June, industrial metals prices moved higher in July. Weaker demand from China was counterbalanced by the shift in tone by the Chinese central bank, while demand from the rest of the world is rebounding and Europe has confirmed that it is serious about its energy transition (Fit For 55 plan), which will support demand for industrial metals.
The gold price advanced after its sharp decline in June. In view of the risks of a slower recovery in growth caused by the Delta variant, central banks will be reluctant to tighten monetary policy quickly. The fall in US real interest rates below the Covid low helped support the gold price.