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Oil market rallies as OPEC delivers supply surprise

​Today OPEC delivered on its promise to raise oil output, with a nominal increase of 1mb/day agreed in principle. As some producers within the group are unable to boost production, we expect this to translate into a 0.6mb/day increase.

The modest increase in supply only partly offsets the extra barrels that have been lost due to the ongoing crisis in Venezuela and does little to address our concerns about future supply. Prices have picked up in the past 24 hours, as the possibility of a larger increase in production appears to be off the table for now. The backdrop is also supportive, with inventories falling and fundamentals tightening on decent demand growth.

We have revised down our forecast for Brent, but are still fairly bullish. We now expect an average of US$80pb in H2 2018 and US$77pb in 2019. Significant supply cuts in both Iran and Venezuela can be expected in the months ahead, and US producers face major bottlenecks. Even though OPEC has acted to moderate market tightness, we still think that prices will push higher in the second half of this year.

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